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promote and support equity and justice. convening group or individual will play agency and fiscal agent for the Con- COLLABORATING FOR EQUITY & JUSTICEThe convening group might fulfill the fol- be clearly defined. If not, such a struc- sortium for Infant and Child Healthlowing roles: ture eventually may evolve into taking (CINCH) since 1993. The consortium • Securing and providing expertise the leadership role or acting from its and its members have broached the idea own interests. Regardless of whether of becoming an independent nonprofit and resources required to sustain the the structure is managed by an individual several times, but they concluded that collaborative and implement action from the community, is a locally formed the medical school’s position of neutrality plans; organization, or is an entity from outside and noninterference in CINCH strategies, • Coordinating member activities; the community, setting the parameters of as well as the respect given to it by the • Serving as a centralized communica- its role and responsibilities is essential to community, make it an ideal convener.44 tion source for information shared prevent it from evolving into the typical among collaborative partners and top-down structure that has failed com- All approaches to collaboration stakeholders who are not members munities for decades. must provide for some form of central of the collaborative; and support—but more important, they must • Managing administrative details (e.g., More important, the facilitating acknowledge that, ultimately, they are record keeping, making meeting structure must be vigilant of the power sustainable only by building commu- arrangements, and distributing dynamics among collaborative and non- nity ownership and leadership. With agendas and minutes). collaborative members, and have the the Collaborating for Equity and Justice capacity to identify and name practices approach, the key role of the collabora- Collective Impact assumes that most and processes that intentionally or unin- tive needs to be building communitycoalitions are capable of obtaining the tentionally contribute to power imbal- leadership as opposed to being theresources to have a well-funded back- ances for residents and other individuals leadership. This is based on the sharedbone organization. CI calls for that back- who have historically been excluded. value of instituting collaborative lead-bone organization to provide “overall This will require, for instance, careful ership and democratic governance andstrategic direction, facilitating dialogue self-examination around issues of race, decision making for a coalition. (Seebetween partners, managing data collec- with the white members of the collab- the Collaborating for Equity and Justicetion and analysis, handling communica- orative examining white privilege and Toolkit for tools and resources for thistions, coordinating community outreach, systemic racism as they play out in the principle at www.myctb.org/wst/CEJand mobilizing funding.”41 By giving all collaborative and in their work. This is /Pages/home.aspx.)those responsibilities to the backbone not just a cognitive activity—it requiresorganization, CI inevitably creates a reengaging the heart as a professional A Call to Actiontop-down organization versus a truly development strategy for racial justice.collaborative one where leadership and We believe that for both moral and prac-responsibility are dispersed. CI does not Butterfoss emphasizes adopting the tical reasons, the collaborations of thereadily distinguish between leadership in simplest structure that will accomplish future must focus on equity and justice.a collaboration and more typical hierar- the collaborative’s goals.43 Form should Equity and justice, in the abstract, arechical organizational leadership. Again, follow function to ensure that the col- fundamental American values, wovenextensive literature provides a guide laborative is flexible and responsive. If tightly into our social fabric. In theto democratic and collaborative gover- the collaborative does not organically abstract, they are difficult to oppose.nance. David Chrislip and Carl Larsen’s form out of community concern, then Problems arise, though, when placingCollaborative Leadership helped dis- the convening group should be a neutral those values into community practice.tinguish the unique characteristics and community-based organization that pro- In practice, they can challenge existingpractices of collaborative leadership in vides support but does not determine power structures by giving more powercoalitions, including the skills and func- how the coalition will function. Academic to those less enfranchised and threaten-tions of a collaborative leader and how institutions, health and social services ing the power of current institutionalthey differ from traditional hierarchical agencies, and other community-based systems and the community profession-leadership.42 nonprofits have all served as neutral als who populate them. conveners over decades. For example, In Collaborating for Equity and Justice Eastern Virginia Medical School, in Collaborating for Equity and Justiceapproaches, it is critical that the role the Norfolk, has served as the convening principles seek new ways to engage our communities in collaborative actionWINTER 2016 • WWW.NPQMAG.ORG  T H E   N O N P R O F I T   Q U A R T E R LY  ​49

COLLABORATING FOR EQUITY & JUSTICE that will lead to transformative changes Implementing the Principles of agendas, and current commitments to in power, equity, and justice. McAfee, Collaborating for Equity and Justice an equity and justice work plan. Rela- Blackwell, and Bell got it right when beling alone will not do the job. What they said that, moving forward, “We It is one thing to propose a new approach is required is the hard work of conduct- must focus on race, engage communi- to collaboration but quite another to ing one-to-one conversations in the com- ties, and take on the challenge of chang- implement those principles in practice. munity with those most affected, and ing systems and policy. This is the only Yet, if the principles of Collaborating bringing them into the decision making way to dismantle barriers to opportunity, with Equity and Justice have merit, then and leadership of the initiative. It will scale best practices and local models of they must be diligently and continuously also require education, self-reflection, success, and achieve the broad, deep applied in our everyday work. How can and discussion within the collaborative changes needed to create communities such application best come about? on power, racial justice, and equity. of opportunity for all.”45 The problems facing American society Community organizers may reach Wolff’s identification of the short- are clearly multifaceted; therefore, solu- out to existing coalitions and collabora- comings of Collective Impact and the tions must be multifaceted as well. But tives, but coalitions and collaboratives problems created by the uncritical each stakeholder sector can and should should proactively identify organiz- wholesale endorsement of this approach generate its own solutions, and these ing initiatives and reach out to them to by foundations and government laid the combined solutions can have a power- explore possibilities for partnerships or groundwork for our proposal of this new ful cumulative effect. The best way is by collaborations. At the same time, they direction.46 We propose that if we truly parallel action along multiple fronts. Col- should recognize that organizing initia- are going to address the prevailing dis- laborations by their nature involve mul- tives must maintain their autonomy to parities we are facing, such as the wid- tiple stakeholder groups, so each of those engage in forceful advocacy when it is ening wealth gap and the increasingly groups must become directly and person- needed to create local change. Coalitions visible injustices directed against young ally involved in application activities. To must learn to embrace (or at least appre- men of color, then we truly will need be more specific, we offer the following ciate) this approach as a key avenue to to follow the six principles described suggestions for each stakeholder group. pursue equity and justice. above. Collaborative multisector approaches for equity and justice that Foundations and federal and state Community professionals will work hand in hand with traditional com- governments that launched the Collec- need to release much of their control munity organizing, public policy change, tive Impact juggernaut will need to turn over local definitions of and solutions and political efforts to reach our commu- their attention and funds to supporting to community problems, and commit to nities’ goals are essential. We doubt that approaches that embrace Collaborating sharing power and doing business in less top-down efforts can be reengineered for Equity and Justice principles. They traditional ways. This will involve devel- to become grassroots efforts after the will need to: (1) adjust their expectations oping new skill sets for facilitation, part- power has already been claimed by the for collaboratives so as to make equity nering, and serving in supportive roles. powers that be. and justice the top priority; (2) adjust their timelines to longer-term commit- The nonprofit sector has a vital We need to develop improved change ment and support; (3) be willing to toler- role to play here, particularly when models to enhance principles and prac- ate controversy; (4) support the shifting it becomes directly engaged in local tices of community and systems change of power and dismantling of structural community life. As public resources collaboration that are based on quality racism; and (5) be prepared to deal with remain scarce or become scarcer, we research, formal evaluations, partici- conflicts that arise from oppression, will need to get better at mobilizing and pant observations, and different ways including internalized oppression and utilizing all local assets, including local of knowing and acting. A racial justice threats to privilege. skills and abilities, to maintain commu- power analysis must be part of the nity well-being. Collaboration across approach. We need to ensure that future Existing collaboratives, includ- community sectors will certainly be a efforts intentionally shift power imbal- ing those using a Collective Impact primary way to do this, and that is some- ances and leave the power in the hands approach in their practice, will need thing many nonprofits already know how of community residents, with the neces- to embrace the principles of equity and to do. We start with an advantage here, sary supports. justice set forth in this paper and reex- because collaboration plays to nonprofit amine their membership, distribution strengths. of power and resources, social change 50 ​T H E   N O N P R O F I T   Q U A R T E R LY  WWW.NPQMAG.ORG • WINTER 2016

10 Places Where Collective Impact Gets It Wrong Kegler, “The Community Coalition Action COLLABORATING FOR EQUITY & JUSTICE Theory,” in Emerging Theories in Health 1. Collective Impact does not address the essential requirement for meaningfully engaging Promotion Practice and Research, 2nd those in the community most affected by the issues. ed., Ralph J. DiClemente, Richard A. Crosby, and Michelle C. Kegler, eds. (San 2. Collective Impact emerges from top-down business-consulting experience and is thus not Francisco: Jossey-Bass, 2009), 237–76; a true community development model. Tom Wolff, The Power of Collaborative Solutions: Six Principles and Effective 3. Collective Impact does not include policy change and systems change as essential and Tools for Building Healthy Communities intentional outcomes of the partnership’s work. (San Francisco, CA: Jossey-Bass, 2010); and Pennie G. Foster-Fishman and Erin R. 4. Collective Impact misses the social justice core that exists in many coalitions. Watson, “The ABLe Change Framework: A Conceptual and Methodological Tool for 5. Collective Impact, as described in John Kania and Mark Kramer’s initial article, is not based Promoting Systems Change,” American on professional and practitioner literature or the experience of the thousands of coalitions Journal of Community Psychology 49, no. that preceded their 2011 article. 3–4 (2011): 503–16. 2. John Kania and Mark Kramer, “Collective 6. Collective Impact mislabels its study of a few case examples as“research.” Impact,” Stanford Social Innovation Review 9, no. 1 (Winter 2011). 7. Collective Impact assumes that most coalitions are capable of obtaining the resources to 3. Vu Le, “Are you or your org guilty have a well-funded backbone organization. of Trickle-Down Community Engage- ment?” Nonprofit with Balls, January 8. Collective Impact also misses a key role of the backbone organization—building leadership. 20, 2015, nonprofitwithballs.com/2015 /01/are-you-or-your-org-guilty-of-trickle 9. Community-wide, multisectoral collaboratives cannot be simplified into Collective Impact’s -down-community-engagement/; Le, “Why five required conditions. communities of color are getting frus- trated with Collective Impact,” Nonprofit 10. The early available research on Collective Impact calls into question its contribution to with Balls, November 29, 2015, nonprofit coalition effectiveness. withballs.com/2015/11/why-communities -of-color-are-getting-frustrated-with Collaborating for Equity and Justice Principles -collective-impact/; Michael McAfee, Angela Glover Blackwell, and Judith Bell, Equity: 1. Explicitly address issues of social and economic injustice and structural racism. The Soul of Collective Impact (Oakland, CA: PolicyLink, 2015); Tom Wolff, “10 Places 2. Employ a community development approach in which residents have equal power in Where Collective Impact Gets It Wrong,” determining the coalition’s or collaborative’s agenda and resource allocation. Voices from the Field, Nonprofit Quarterly, April 28, 2016, nonprofitquarterly.org/2016/04 3. Employ community organizing as an intentional strategy and as part of the process. Work /28/voices-from-the-field-10-places-where to build resident leadership and power. -collective-impact-gets-it-wrong/; Peter Boumgarden and John Branch, “Col­ 4. Focus on policy, systems, and structural change. lective Impact or Coordinated Blind- ness?” Stanford Social Innovation 5. Build on the extensive community-engaged scholarship and research over the last four Review, February 13, 2013, www.ssire decades that show what works, that acknowledge the complexities, and that evaluate view.org/blog/entry/collective_impact appropriately. _or_coordinated_blindness; and Kania and Kramer, “Collective Impact.” 6. Construct core functions for the collaborative based on equity and justice that provide basic 4. Johnna Flood et al., “The Collective Impact facilitating structures and build member ownership and leadership. Model and Its Potential for Health Promotion: All of us will need to exercise the The authors would like to thank Kevincourage to do what is needed, even Barnett, Teri Behrens, David Chavis,though it may not be quick and easy. Doug Easterling, Michelle Kegler, TylerIn the end, following the principles Norris, Abigail Ortiz, and Monte Roulierdescribed in this article has the greatest for their contribution to this article.likelihood for creating a more equitableand just world—the kind of world that Notesmost of us would like to live in. 1. Frances D. Butterfoss and Michelle C.WINTER 2016 • WWW.NPQMAG.ORG  T H E   N O N P R O F I T   Q U A R T E R LY  ​51

COLLABORATING FOR EQUITY & JUSTICE Overview and Case Study of a Healthy Retail and Public Policy, Berkeley, CA, November 24. For more on this topic, see James DeFilip- Initiative in San Francisco,” Health Educa- 2004). pis, Robert Fisher, and Eric Shragge, Contest- tion & Behavior 42, no. 5 (October 2015): 14. Brian D. Christens and Paula Tran ing Community: The Limits and Potential 654–68. Inzeo, “Widening the view: situating of Local Organizing (New Brunswick, NJ: 5. Boumgarden and Branch, “Collective collective impact among frameworks for Rutgers University Press, 2010) and Staples, Impact or Coordinated Blindness?”; Flood community-led change,” Community “Selecting and ‘Cutting’ the Issue.” et al., “The Collective Impact Model and Its Development 46, no. 4 (2015): 420–35. 25. See Wolff, The Power of Collaborative Potential for Health Promotion”; McAfee, 15. McAfee, Blackwell, and Bell, Equity. Solutions (San Francisco, CA: Jossey-Bass, Blackwell, and Bell, Equity; and Wolff, “10 16. Wolff, “10 Places Where Collective Impact 2010). Places Where Collective Impact Gets It Gets It Wrong.” 26. Christens and Inzeo, “Widening the view.” Wrong.” 17. McAfee, Blackwell, and Bell, Equity. 27. Wolff, The Power of Collaborative 6. Mark Cabaj and Liz Weaver, “Collective 18. “Healthy Start Initiative: Eliminat- S olutions. Impact 3.0: An Evolving Framework for ing Disparities in Perinatal Health (Level 28. Richard L. Wood, Brad Fulton, and Community Change” (Waterloo, ON: Tama- 2: Enhanced Services Healthy Start),” Kathryn Partridge, Building Bridges, rack Institute, 2016). grants notice, Department of Health and Building Power: Developments in 7. Collaborating for Equity and Justice Human Services, Health Resources and Institution-Based Community Organiz- Toolkit, www.myctb.org/wst/CEJ/Pages Services Administration, www.grants.gov ing (Longmont, CO: Interfaith Funders, /home.aspx. /view-opportunity.html?oppId=251360. 2013). 8. McAfee, Blackwell, and Bell, Equity. 19. Sherry R. Arnstein, “A Ladder of Citizen 29. McAfee, Blackwell, and Bell, Equity, 6. 9. Junious Williams and Sarah Marxer, Participation,” Journal of the American 30. Thomas R. Frieden, “A Framework for Bringing an Equity Lens to Collective Institute of Planners 35, no. 4 (1969): 216–24; Public Health Action: The Health Impact Impact (Oakland, CA: Urban Strategies The Role of Community Engagement in Pyramid,” American Journal of Public Council, August 2014). Community Health Improvement (Centers Health 100, no. 4 (April 2010): 590–95. 10. Flood et al., “The Collective Impact for Disease Control and Prevention Perfor- 31. Internal Revenue Service, “Measur- Model and Its Potential for Health Promo- mance Improvement Managers Network Call, ing Lobbying Activity: Expenditure Test,” tion”; and Natabhona Marianne Mabachi June 28, 2012); and Effective Engagement, last modified March 28, 2016,www.irs.gov and Kim S. Kimminau, “Leveraging Com- A Model for Engagement: IAP2 Spectrum /charities-non-profits/measuring-lobbying munity–Academic Partnerships to Improve (Department of Environment and Primary -activity-expenditure-test. Healthy Food Access in an Urban, Kansas Industries, October 21, 2013). 32. Wolff, The Power of Collaborative City, Kansas, Community,” Progress 20. Shepherd Zeldin, Brian D. Christens, S olutions. in Community Health Partnerships: and Jane L. Powers, “The Psychology and 33. Stergios Tsai Roussos and Stephen B. Research, Education, and Action 6, no. 3 Practice of Youth–Adult Partnership: Bridg- Fawcett, “A Review of Collaborative Part- (September 2012): 279–88. ing Generations for Youth Development and nerships as a Strategy for Improving Com- 11. Denise Koo et al., An Environmental Community Change,” American Journal of munity Health,” Annual Review of Public Scan of Recent Initiatives Incorporating Community Psychology 51, no. 3–4 (June Health 21 (May 2000): 369–402; Pennie G. Social Determinants in Public Health 2013): 385–97. Foster-Fishman et al., “Building Collabor- (Washington, DC: National Academy of 21. Dana Wright, “¡Escuelas, Si! ¡Pintas, No! ative Capacity in Community Coalitions: Medicine, June 30, 2016); and Preventing (Schools, Yes! Prisons, No!): Connecting A Review and Integrative Framework,” Chronic Disease: Public Health Research, Youth Action Research and Youth Organizing American Journal of Community Psy- Practice, and Policy 13 (November 3, 2016). in California,” Children, Youth and Environ- chology 29, no. 2 (April 2001): 241–61; Bill 12. The Boston REACH Coalition brochure, ments 17, no. 2 (2007): 503–16. Berkowitz, “Studying the Outcomes of Boston Public Health Commission, “It’s about 22. Christens and Inzeo, “Widening the view.” Community-Based Coalitions,” American Us: Strong Women Growing Stronger,” 2010. 23. For more on this topic, see Lee Staples, Journal of Community Psychology 29, 13. Keith Lawrence and Terry Keleher, “Selecting and ‘Cutting’ the Issue,” in Com- no. 2 (April 2001): 213–27; Tyler Norris, “Chronic Disparity: Strong and Pervasive munity Organizing and Community “Healthy Communities at Twenty-Five: Evidence of Racial Inequalities: POVERTY Building for Health and Welfare, 3rd ed., Participatory Democracy and the Prospect OUTCOMES: Structural Racism” (paper pre- Meredith Minkler, ed. (New Brunswick, NJ: for American Renewal,” National Civic sented at the National Conference on Race Rutgers University Press, 2012): 187–210. Review 102, no. 4 (Winter 2013): 4–9; and 52 ​T H E   N O N P R O F I T   Q U A R T E R LY  WWW.NPQMAG.ORG • WINTER 2016

Arthur T. Himmelman, “On Coalitions and 43. Butterfoss and Kegler, “The Community Foundation Professor of Community Lead- COLLABORATING FOR EQUITY & JUSTICEthe Transformation of Power Relations: Coalition Action Theory.” ership, and director of the Work Group forCollaborative Betterment and Collabora- 44. Frances D. Butterfoss et al., “CINCH: Community Health and Development at thetive Empowerment,” American Journal An urban coalition for empowerment and University of Kansas. Arthur T. Himmelmanof Community Psychology 29, no. 2 (April action,” Health Education & Behavior 25, is a consultant focused on community and2001): 277–84. no. 2 (April 1998): 212–25. systems change collaboration, with prior34. Roussos and Fawcett, “A Review of Col- 45. McAfee, Blackwell, and Bell, Equity, 7. professional positions in academia and phi-laborative Partnerships as a Strategy for 46. Wolff, “10 Places Where Collective lanthropy. Kien S. Lee, PhD, is vice presi-Improving Community Health.” Impact Gets It Wrong.” dent and principal associate of Community35. Shakeh J. Kaftarian and William B. Science, and provides research, evaluation,Hansen, “Improving methodologies for the Tom Wolff, PhD, is president of Tom Wolff and other technical support to governmentevaluation of community-based substance & Associates (www.tomwolff.com) and agencies, foundations, nonprofit organiza-abuse prevention programs,” Journal of a nationally recognized community psy- tions, and intermediaries in the followingCommunity Psychology, Special Issue chologist committed to issues of social areas: racial equity, health disparities, cul-(1994): 3–6. justice and building healthy communities tural competency, immigrant integration,36. Tom Wolff, “Tools for Sustainability,” through collaborative solutions. Meredith intergroup relations, and community andGlobal Journal of Community Psychology Minkler, DrPH, MPH, is professor emerita systems change.Practice 1, no. 1 (2010): 40–57. at the University of California Berkeley’s37. Center for Civic Partnerships, Sustain- School of Public Health, and coeditor of To comment on this article, write to us atability toolkit: 10 steps for maintaining eight books, including Community-Based [email protected]. Order reprints fromyour community improvements (Oakland Participatory Research for Health and http​:/​/​store​.nonprofitquarterly​.org, usingCA: Public Health Institute, 2001); and Health Equity (3rd ed., San Francisco: code 230405.Centers for Disease Control and Prevention Jossey-Bass, 2017). Susan M. Wolfe is aet al., A Sustainability Planning Guide senior consultant at CNM Connect, where UUPNPIVEERRIOSWITAYfor Healthy Communities (Atlanta, GA: she provides evaluation and organizationalCenters for Disease Control and Preven- capacity-building services to nonprofit orga- MASTER IN PUBLICtion, 2011). nizations. Bill Berkowitz is an emeritus ADMINISTRATION:38. “Community Check Box Evaluation professor of psychology at the UniversitySystem,” Community Tool Box website, of Massachusetts Lowell, and a founding Your Path to Leadership!ctb.ku.edu/en/community-check-box contributor to the Community Tool Box, a-evaluation-system. community-building website. Linda Bowen PORNOLIGNREAM!39. Jerry A. Schultz et al., “Participatory is the executive director of the Institute forMonitoring and Evaluation Within a State- Community Peace, and has worked for over MPA emphasis areaswide Support System to Prevent Adolescent twenty years on supporting residents andSubstance Abuse,” Journal of Prevention their funders’ and organizational partners’ - Nonprofit Organizational Management& Intervention in the Community 41, no. 3 ability to work together on community - Government Administration(2013): 188–200. social and development issues. Frances - Health and Human Services CLASSES40. Butterfoss and Kegler, “The Community Dunn Butterfoss, PhD, is a health educator, - Emergency Management STARTCoalition Action Theory”; and Wolff, The professor, and president of Coalitions Work, and Homeland Security EVERYPower of Collaborative Solutions. a consulting group that helps communities 8 WEEKS41. Fay Hanleybrown, John Kania, and Mark develop, sustain, and evaluate health promo- - And more!Kramer, “Channeling Change: Making Collec- tion/disease prevention coalitions. Brian D.tive Impact Work,” Stanford Social Innova- Christens, PhD, is Rothermel-Bascom Asso- LEARN MORE TODAYtion Review, January 26, 2012. ciate Professor of Human Ecology at the42. David D. Chrislip and Carl E. Larsen, Col- University of Wisconsin–Madison, where he Call 800-553-4150 or visitlaborative Leadership: How Citizens and serves as faculty director of the UW’s Center UIU.EDU/NONPROFIT2016Civic Leaders Can Make a Difference (San for Community and Nonprofit Studies.Francisco: Jossey-Bass, 1994).
 Vincent T. Francisco is the Kansas HealthWINTER 2016 • WWW.NPQMAG.ORG NonProfit Qtrly - 2.22 x 4.687 - Winter 2016 Issue.indd111/29/2016 1:14:31 PM  T H E   N O N P R O F I T   Q U A R T E R LY  ​53

PHILANTHROCAPITALISM The Philanthropic State: Market–State Hybrids in the Philanthrocapitalist Turn by Linsey McGoey The net worth of the world’s richest individuals is growing larger even as economies are shrinking, but governments remain one of the most powerful—if not the most powerful—actors in the philanthrocapitalist turn. Indeed, state support is vital to the rise of “new” philanthropic movements. Here, the author suggests that recent work in economics on the “risk–reward nexus” can help development scholars to better theorize the relationship between private and state actors in philanthropy. Editors’ note: This article was first published by Third World Quarterly (vol. 35, no. 1), in February 2014. It has been adapted by the author for this publication with the kind permission of Taylor & Francis Ltd., www.tandfonline.com, on behalf of Third OWorld Quarterly. development—I illustrate the ways in ineptitude and waning influence of gov- ver the past decade, a new form which governments remain one of the ernment policies. Third, I suggest that of philanthropy has emerged, most powerful, if not the most powerful, recent work by economists William Lazo- termed “philanthrocapital- philanthropic actors in the philanthro- nick and Mariana Mazzucato on what ism.” Champions of philan- throcapitalism suggest that private giving capitalist turn. they term the “risk–reward nexus” can can fill the void left by diminished gov- The article makes three main points. help development scholars better theo- ernment spending on social and devel- First, drawing parallels between new rize the relationship between private and opment programs. Critics suggest that organizations such as the Gates Foun- state actors in development projects.1 philanthropy is no substitute for strong dation and earlier foundations such as The article concludes with a brief dis- governmental support for social welfare. Rockefeller and Ford, I suggest that cussion of the paradoxes at root in the Both perspectives perpetuate a dichot- philanthrocapitalism is simultaneously image of the lone philanthrocapitalist omy between the public and the private, far less novel and more novel than pro- “entrepreneur” reshaping development implying that philanthrocapitalism oper- ponents suggest. Second, I suggest that policies. ates in a vacuum largely divorced from a neglected actor within discussions of governmental interventions. In reality, philanthrocapitalism is the state itself. The New Empire of Giving rather than a binary approach, it’s useful Just as legislative change and govern- A key question to ask of the “new” philan- to understand the ways in which the mental subsidies were crucial to the throcapitalism movement is, “Just how philanthrocapitalist turn has compelled nineteenth- and twentieth-century devel- new is it?” The term was first coined increased financial support from govern- opment of global economic markets, in 2006 in an article in the Economist. ments toward the private sector. Drawing state support is vital to the rise of “new” Later on, Matthew Bishop, an editor at on three cases—direct philanthropic and philanthropic movements; governments the Economist, and Michael Green, a governmental grants to corporate enti- are, somewhat ironically, instrumental former policy maker at the United King- ties; impact investing; and advanced to the success of philanthropic move- dom’s Department for International market commitments (AMCs) in drug ments strengthened by proclaiming the Development (DFID), elaborated on 54 ​T H E   N O N P R O F I T   Q U A R T E R LY  WWW.NPQMAG.ORG • WINTER 2016

the concept in their 2008 book, Philan- The State–Corporate Nexus such as Canada and Germany, but less PHILANTHROCAPITALISMthrocapitalism: How the Rich Can than the United Kingdom and the UnitedSave the World.2 Compelling studies of The explosion of new philanthropic States. In 2012, Canada contributedthe phenomenon have been offered by trusts comes at a time when governments roughly $379 million to overseas healthleading thinkers such as nonprofit spe- are facing public demand to reduce over- programs; its annual spending on devel-cialist Michael Edwards and legal theo- seas development assistance, something opment aid in general—including fundsrist Garry Jenkins, who have explored that already comprises only a minuscule earmarked for health—tends to hoverthe movement’s emphasis on using per- portion of most states’ gross national around the $1.5 billion mark. Germanyformance metrics, innovative financing income (GNI). At the UN General Assem- spent $307 million on health aid in thatmodels, and increased stewardship of bly in 1970, donor governments pledged year, while the United Kingdom con-grantee decision making to purportedly to spend 0.7 percent of GNI on official tributed $1.3 billion to global health ini-make the nonprofit sector more efficient development assistance. Since then, the tiatives—a rise of 2.3 percent over theand cost effective. majority of rich nations have regularly earlier year. The Gates Foundation, in failed to meet the 0.7 percent target. In comparison, spent $899 million on global There have also been sober efforts to some years, aid falls to between 0.2 and health in 2012. United States spendingquery the assumption of novelty among 0.4 percent of GNI—a shortfall amount- on global health amounted to more thanthe new philanthrocapitalists. Stanley ing to hundreds of billions. that of the Gates Foundation, Canada,Katz, for example, has suggested that Germany, and the United Kingdom com-the objective to render philanthropy The fact that private philanthropic bined: its outlay in 2012 was $7 billion.5more cost effective and results oriented giving is increasing at the same timehas a far longer historical heritage than that, proportionately, the amount spent Although governmental overseasmost proponents of philanthrocapitalism by Western governments as a ratio of development assistance far exceeds theappear to realize.3 Both John D. Rocke- their GNI is decreasing has led to the amount spent by private foundations onfeller and Andrew Carnegie aimed, as the growing public perception that private international development, foundationssociologist Nicolas Guilhot writes, “to actors are playing a strong or majority are rich in political influence. The vis-apply the rational methods of business role in development financing when it ibility of the Gates Foundation enablesto the administration of charitable deeds, comes to dollar expenditures. This is it to leverage its own resources in orderwhich they considered to be outdated not, in fact, the case. Take the example to rally partners to the causes it aimsand deficient.”4 What is new about the of the Bill and Melinda Gates Founda- to prioritize. The eminent global healthnew philanthropy is the extremely fast tion and global health. When it comes scholar Laurie Garrett has suggested thatclip at which new philanthropic foun- to financial investment, the Gates at the World Health Organization virtu-dations are growing. As outlets such as Foundation outpaces any other private ally no major policy decisions take placeForbes have reported each year since the philanthropic foundation in the world, without being “casually, unofficiallyonset of the 2008 financial crisis, the net donating over $18 billion to global health vetted by Gates Foundation staff.”6worth of the world’s richest individuals programs to date.is growing larger even as average wages The visibility of the Gates Founda-stagnate. Wealth concentration has While that figure is significant, it is tion helps to galvanize state funders toreached unprecedented levels. World- paltry compared to what rich nations increase their funding toward areas thatwide, the number of billionaires more spend collectively on global health the Gates Foundation deems important,than tripled from 2000 to 2010, growing initiatives each year. From 2004 to 2008, while simultaneously helping to entrenchto 1,011 from 306, and many of them are for example, the President’s Emergency the questionable perception that statessteering their fortunes toward new phil- Plan for AIDS Relief (PEPFAR) spent are increasingly deferring their ownanthropic entities. In the early 2000s, over $18.1 billion on global HIV/AIDS commitments to the philanthropic andas the Foundation Center reports, the programs. In other words, one singular corporate sectors. Many states are not,number of active foundations was about initiative from the U.S. government in fact, deflecting commitments to thefifty thousand. It now stands at over had spending on par with the Gates private sector; they are channeling moreeighty-nine thousand. An estimated five Foundation’s total spending on global aid directly to private industry. Govern-thousand more philanthropic founda- health to date. ments are extending themselves in newtions are set up each year. directions in a semblance of surrender- In recent years, the Gates Foundation ing control to private entities that are, has contributed more annually toward global health than individual nationsWINTER 2016 • WWW.NPQMAG.ORG  T H E   N O N P R O F I T   Q U A R T E R LY  ​55

PHILANTHROCAPITALISM in many ways, less entrepreneurial than are underpinning the so-called “market” that there is a growing disconnect governments themselves. turn in development, characterized by between the economic actors driving the recent explosion of public–private innovation, including governments, In 2003, for example, DFID provided partnerships intended to combat persis- and those reaping the financial rewards just under $1.5 million in a one-off, tent market failures in the provision of of public-sector investment. “While nonrepayable donation to Vodafone basic services or treatments. risk-taking has become more collec- to establish M-Pesa, a system allowing tive—leading to much discussion about villagers in Kenya to pay bills through Interestingly, in most public–private open innovation and innovation ecosys- text message on their mobile phones. partnerships, the private sector is often tems,” they write, “the reward system By 2007, Vodafone and Safaricom, a seen as bringing market “efficiency” as has become dominated by individuals Kenyan company partly owned by Voda- well as financial resources and know-how who, inserting themselves strategically fone, had M-Pesa up and running. Within to the relationship. But often it is govern- between the business organization and two years, the M-Pesa scheme accounted ments that provide a financial subsidy or the product market . . . lay claim to dis- for a significant portion of Safaricom’s grant to industry, not the reverse. Despite proportionate share of the rewards of the $200 million annual profits. By 2008, the role played by governments in funding innovation process.”10 Safaricom was Kenya’s (and also East a development initiative, the ability of a Africa’s) largest and most profitable private actor to capitalize on a project at One of Lazonick and Mazzucato’s company.7 In 2010, the Gates Founda- the point of market access means that aims is to emphasize that the willingness tion offered a nonrepayable grant of many casual observers are unaware that to invest in the most uncertain phase of $4.8 million to Vodacom, a Vodafone sub- governments were even involved at all. a fledgling sector’s development dem- sidiary, to enable the company to roll out Most popular press articles on M-Pesa onstrates that government actors don’t M-Pesa in Tanzania. celebrate the entrepreneurial acumen simply regulate or “fix” markets, they of Vodafone and Safaricom, despite the actively create and shape new market As of December 2011, Vodafone had fact that Hughes is on record attesting to opportunities. Governmental under- a market capitalization of $135 billion. the fact that his colleagues at Vodafone writing and subsidies toward industry In September 2010, the British-based refused to invest in the initiative without groups is a well-documented phenom- company was criticized for tax avoid- a government grant. A recent article in enon; Michael Lind’s 2012 book, Land of ance schemes that enabled it to avoid bil- Wired, for example, hails M-Pesa as a Promise, for example, details the long lions by securing the acquisition of a “non-governmental, cashless system,” history of government investment in new German corporation through a Lux- calling it a “rare example of Africa suc- rail and extractive technologies in the embourg subsidiary. Despite its ample cessfully leapfrogging the developed nineteenth century.11 And yet, according resources, the company has stated that world’s legacy infrastructure and moving to Lazonick and Mazzucato, many main- seed funding from the U.K. government straight into a mobile system.”9 stream economists remain either indiffer- was necessary to expand operations in ent or blind to the strong role of the state less-developed markets. Nick Hughes, Governments to the Rescue in financially underwriting innovations. the global head of international mobile Public ignorance of DFID’s direct grant They suggest that while there is fairly payment solutions at Vodafone, stated to Vodafone helps to entrench a widely widespread recognition of the import of that without the $1.5 million from DFID held fallacy: that private actors are inher- the economist John Maynard Keynes’s toward the development of M-Pesa, he ently more innovative or entrepreneurial insights on the value of state investment could not have persuaded Vodafone to than public ones. Recently, a number of during economic downturns, the funda- invest in the venture.8 influential economists have sought to mental role of the state in driving innova- challenge this notion, questioning the tion in economic upswings is curiously DFID’s support for Vodafone is idea that the private sector is necessar- ignored. Similarly, while many econo- regularly touted as an example of the ily more risk friendly than state actors in mists recognize the strong role played by benefits of providing governmental creating new economic markets. Lazo- states in creating new markets in devel- support to finance or corporate ven- nick and Mazzucato have been at the oping regions, fewer economists “have tures. It is pointed to by DFID officials forefront of research examining the role focused on the state as a leading actor as an example of mutual gain: Vodafone of the public sector in driving innova- even in the most developed regions of the expands its market reach, while domes- tion in the private sector. They suggest world, such as Silicon Valley.”12 tic users benefit from enhanced technol- ogy. Cases such as the Vodafone example 56 ​T H E   N O N P R O F I T   Q U A R T E R LY  WWW.NPQMAG.ORG • WINTER 2016

Because the state’s early investments You do not necessarily need a new provides a comprehensive overview of PHILANTHROCAPITALISMin innovation are often capitalized upon idea to be an entrepreneur—you impact investing. The report states thatby private investors, it is difficult to just need to figure out the pack- investor excitement over impact invest-measure the financial returns directly aging that will sell a product to ment has been fueled by a 2010 studygenerated through state investment. In the buyer in a way that builds an from J.P. Morgan, the Rockefeller Foun-other words, it is hard to measure which institution. The most common dation, and the Global Impact Investingis the most innovative—the state or the definition of an entrepreneur is Network, which predicted that potentialprivate sector. In Lazonick and Mazzu- “one who organizes, manages, and profits for investors could range fromcato’s words, the “failure to recognize assumes the risks of a business or $183 billion to $667 billion, with investedthe State’s risk-taking role, and the enterprise” . . . entrepreneurs open capital reaching $1 trillion.15‘bumpy’ landscape on which it invests, up pizza places and spas, and buildmakes it almost impossible to measure carpeting emporiums—none of Attracted by the capacity for profit,its success.” Despite this difficulty, it is which is especially innovative.14 investors flocked to this space—butincontestable that government invest- since then, as the Monitor report notes,ment has been the genesis of many of Defined in this way, it becomes clear investors have been dealt a “realitythe most successful and profitable inno- that very few of the “new” development check.” There are not enough financiallyvations in recent decades, including the initiatives touted by the new philanthro- promising companies for impact inves-development of the Internet. pists, such as microfinance, could be tors to invest in. Organizations abound called either innovative or entrepreneur- that appear to offer social benefit, but In blunt language, Lazonick and Maz- ial. The first modern microfinance institu- whether they can offer market-basedzucato suggest that increased state sub- tion (MFI), the Grameen Bank (founded returns is questionable—and vice versa.sidies “permit companies to get off the in 1983 by Muhammad Yunus, who later The experience of the Acumen Fund, ahook of making these risky investments won a Nobel Peace Prize for his work), nonprofit group that funds market-basedthemselves even as their executives was indeed innovative—providing solutions to development challenges,deliberately make no mention of State financial services on a nonprofit basis to illustrates this problem. After consid-support. Indeed they invoke ‘free market’ populations shunned by Wall Street–type ering five thousand potential compa-ideology to claim that, having taken all lenders. But MFIs since are mostly deriv- nies over ten years, it invested in onlythe risks, ‘private enterprise’ needs to ative. Those that have innovated, such sixty-five of them. Quoting a candidreap all the rewards.”13 as by charging increased interest rates, comment from Andrew Carnegie, “Pio- have done so at the expense of Yunus’s neering don’t pay,” the Monitor report The misguided tendency to assume initial vision. Many MFIs today operate acknowledges that most for-profit inves-that private actors are inherently more on a for-profit rather than nonprofit tors are reluctant to invest in areasinnovative than governments under- basis. Some charge cripplingly high where the financial payoff is uncertain.scores a degree of rhetorical confusion interest rates, eliciting Yunus’s censure As coauthor Robert Katz wrote in a presswithin the philanthrocapitalism move- for the explosion of MFIs that increase release, because for-profit investors arement. Often, words such as “entre- indebtedness. uneasy about investing in risky financialpreneurial” and “innovative” are used ventures, “truly realizing the ‘impact’ ininterchangeably to describe the purport- The New Déjà Vu: Impact Investing impact investing will require more, notedly novel approach of new philanthropic as Market Opportunity less, philanthropy.”16initiatives, with little empirical supportfor whether these “new” approaches do Impact investing is another area where The Monitor report draws on theactually represent substantive changes there’s considerable hype over the idea case of microfinance to support its callover earlier business models. that investors can “do good by doing for increased philanthropic support well.” It’s defined as the idea that indi- for impact investing. The authors note As Ruth McCambridge, editor in viduals can earn “market-rate” financial that, before microfinance becamechief of the Nonprofit Quarterly, writes returns for investing in projects geared financially profitable, the microfinancein an article questioning the increased toward providing environmental and sector received roughly $20 billion invogue for words such as “innovation” social benefit. A recent report from subsidies from philanthropies and gov-and “entrepreneurship,” in reality these Monitor, a consultancy firm founded by ernmental aid. The report emphasizesthings are often very distinct, if not the management scholar Michael Porter, that microfinance is now a financiallyincompatible:WINTER 2016 • WWW.NPQMAG.ORG  T H E   N O N P R O F I T   Q U A R T E R LY  ​57

PHILANTHROCAPITALISM robust impact investment area. While idea that governments can and should exchange for developing treatments for still underperforming compared to offer subsidies to private industry, but he diseases such as malaria and tuberculo- some market-based sectors, “[N]et suggests that champions of this approach sis. Despite governmental and industry internal rates of return for debt-based require far more demonstrable proof acclaim for AMCs, critics suggest that microfinance investment vehicles (MIVs) that returns to general society outweigh the first and sole AMC to date—a vaccine averaged 4.9 percent through 2008, while returns to private investors; otherwise, against pneumococcal disease—has not riskier equity-based MIVs achieved the decision to offer money to a for-profit been as cost effective as it could have 12.5 percent.” Two leading proponents rather than a nonprofit recipient is not been, profiting industry at the expense of impact investing, Jed Emerson and defensible.19 of taxpayers. Antony Bugg-Levine, share this favor- able view. In a 2011 interview, they Subsidizing the Corporate Sector Below, as a final case study, I explore pointed out that, even during the recent One of the strongest champions of the recent debates over the first AMC. My economic downturn, “impact investors in idea that philanthropists should directly aim is to emphasize the following point: microfinance bonds received a consistent subsidize corporations is the Gates by partnering with the private sector 6 percent return . . . not a bad financial Foundation. through a public–private partnership return at all.”17 such as the AMC, governments often In 2013, the Gates Foundation surrender both the ability to generate In other words, after billions in subsi- announced a grant of $100,000 to Ogilvy revenue from products and the legal dies from taxpayers, microfinance inves- PR, a public relations firms, for a project ability to determine the cost effective- tors are finally starting to turn a handsome called “Aid is working: tell the world.” ness of existent or future projects. Both profit for investors in the Global North. Ogilvy PR is part of Ogilvy and Mather, knowledge and income are sacrificed But are they actually helping loan recipi- one of the largest marketing companies in the name of purported increases in ents in the Global South? in the world. That Ogilvy is a benefac- efficiency—a problem that is growing tor of Gates Foundation largesse raises more acute as ever more overseas gov- The answer appears, so far, to be no. uncomfortable questions. Corporations ernmental development aid is gifted to There is considerable literature on the receive sizable tax breaks in the United private companies. adverse effects of microfinance, detail- States. Is a gift from the Gates Founda- ing the ways that both for-profit and tion to Ogilvy, or its $4.8 million grant to Advanced Market Commitments: nonprofit microfinance lending often Vodacom, really the best use of money Hype or Hope? saddle loan recipients with crippling that, if it had been taxed as income debt. There is currently no evidence that rather than placed in a philanthropic For decades, health and development microfinance is playing any significant trust, would have benefited government scholars have called attention to a role in poverty reduction, something that relief programs? It is incontestable that long-standing problem in global health: Bugg-Levine and Emerson do acknowl- M-Pesa has created benefits for local the lack of new drugs for diseases that edge, pointing out that the for-profit turn communities in Kenya and elsewhere— afflict the world’s poor proportionately in microfinance has led to “unintended but, given the financial windfall the more than the world’s rich. A 2002 study consequences” for the poor.18 program has generated for Vodafone, found, for example, that of the 1,393 new should the company not have borne the chemical entities marketed between 1975 The cases of impact investing and cost of its investment? Why are taxpay- and 1999, only sixteen were for tropical microfinance underscore an unresolved ers increasingly helping to subsidize the diseases and tuberculosis. In the years question surrounding the new philanthro- returns of for-profit companies that have since, there has been a groundswell of capitalism: where’s the evidence that the healthy profit margins, as the Vodafone political and public support for new growing trend of using overseas develop- and Ogilvy examples indicate? financing and legal initiatives intended ment aid and philanthropy to offer sub- to combat this problem by incentivizing sidies to the private sector is helping to These questions are at the heart of multinational companies to invest in directly alleviate poverty in development a recent controversy over the value research and development for diseases regions? According to a 2015 working of AMCs (advance market commit- that primarily afflict the poor. paper from Paddy Carter, a researcher ments), a type of financial mechanism at the Overseas Development Institute, where manufacturers are guaranteed a The AMC is one such mechanism. It the evidence is far thinner than people market for new products at a set price in is a model of vaccine and drug devel- often realize. Carter is an advocate of the opment first proposed in the 1990s by 58 ​T H E   N O N P R O F I T   Q U A R T E R LY  WWW.NPQMAG.ORG • WINTER 2016

Michael Kremer, an economist at Harvard initial price of $7, then $3.50 for the next Norway argued the cost should be no PHILANTHROCAPITALISMUniversity. One of Kremer’s aims was to ten years, with local governments com- higher than seven dollars.22battle the shortage of vaccines in devel- mitting 15 cents of the $3.50 and the restoping regions. His initial idea was fairly covered by pledges from government The health economist and sociologistsimple: a donor makes a binding commit- actors and the Gates Foundation. Donald Light suggested that the ten-dollarment to purchase a particular amount of figure produced by the CGD workinga vaccine or drug if that product is suc- A first rollout of the AMC-funded group was based on much-debated indus-cessfully developed and rolled out in pneumococcal vaccine took place in try figures of how much it costs to bringdeveloping regions. The appeal is clear. December 2010. In a press release at a new drug to market. The economistKremer’s aim was to get around the fact the time, Gavi lauded the new AMC. “By Andrew Farlow has suggested that cham-that a considerable amount of govern- rapidly scaling up the roll out of the pneu- pions of AMCs promote “advance pur-ment funding goes to early seed research mococcal vaccine to more than 40 coun- chase commitments in much the samethat often fails to yield viable products. tries,” Gavi stated, “the GAVI Alliance and way that some pharmaceutical compa-The aim of the AMC model is to offer a its partners, including the Pan American nies promote ‘wonder drugs’: emphasiz-reward for concrete results. Health Organization (PAHO), the World ing the positives, burying the negatives, Health Organization (WHO) and UNICEF, and ending up suggesting that we now In 2004, the Gates Foundation funded can avert approximately 700,000 deaths have all the answers—or rather just thea working group to examine the viability by 2015 and up to seven million deaths one answer—that we need.”23of AMCs. This led to Making Markets for by 2030.”21Vaccines, a 2005 report from the Center Gavi eventually decided on a price offor Global Development (CGD).20 Gov- And yet, despite the fanfare, the seven dollars per initial dose—consider-ernment actors soon came on board. development of the first AMC has faced ably less than initial estimates. RatherIn December 2005, the U.K. govern- persistent criticism. Health economists than alleviate concerns, the arbitraryment announced its intention to fund suggested that the vaccines might have price drop simply compounded the con-an AMC for malaria; other European been purchased far more cheaply by troversy over AMCs, because the priceUnion countries stated that they might traditional UNICEF procurement proce- drop was just that: arbitrary. Nobodyconsider following suit. By June 2009, dures; that Gavi lacked transparency in could say for certain why GSK and Pfizerplans for the first AMC had crystalized. deciding how much to reimburse manu- should receive fifteen dollars per dose,Working with the organization Gavi, the facturers for each vaccine; and that the or ten, or seven, because the companiesVaccine Alliance (Gavi is an acronym for creative possibilities first envisioned by refused to release information on their“Global Alliance for Vaccines and Immu- Kremer—such as relaxing patent rules own manufacturing costs. Staff at Médi-nizations”), the governments of Italy, that make it hard for generic competition cins sans Frontières (MSF), which hasNorway, Canada, Russia, and the United to flourish—were eclipsed from delib- long been a pioneer in vaccine deliveryKingdom, together with the Gates Foun- erations as the model became a reality. in poor regions, repeatedly asked for thedation, committed a total of $1.5 billion baseline data on which the AMC wastoward the development of a vaccine Concerns centered on the high costs modeled. Gavi promised to release theagainst pneumococcal disease, which of the first AMC. Part of the challenge data but failed to follow through.kills an estimated 1.6 million people each of the AMC model is generating a figureyear, most of them children. that would ensure that industry manu- During an interview with Gavi, a rep- facturing costs in rolling out the vaccine resentative told me that she would have In 2010, Pfizer and GlaxoSmithKline are reimbursed—while still convincing liked to have been able to share more(GSK) responded to a tender to distribute government donors that tax dollars have data with MSF and other organizations,the vaccines, committing to supply mil- been spent effectively. In May 2008, at but emphasized that legally Gavi was notlions of doses of the vaccines, which each one of the final meetings of the CGD permitted to. “One of the biggest chal-manufacturer had previously developed: expert working group sponsored by the lenges we have is how big is this incentiveSynflorix, in GSK’s case, and Pfizer’s Pre- Gates Foundation, the group recom- . . . the criticism is, ‘you’re overpaying.’venar 13. Although each vaccine com- mended a payment of ten dollars per And you say, ‘no, we’re not overpaying,’mands a market price of about $70 per dose. Some donor countries, including but how can you share it when you can’tinjection in developed regions, the com- Norway, argued that the cost was too share the cost information?”panies agreed to distribute them for an high and had been set, as an article in the Lancet noted, “by industry premises.” Leading health organizations such as MSF remain concerned that, in theWINTER 2016 • WWW.NPQMAG.ORG  T H E   N O N P R O F I T   Q U A R T E R LY  ​59

PHILANTHROCAPITALISM absence of data on manufacturing capacity building in the 1980s, Brazil has philanthrocapitalists have helped to costs, it is hard to gauge whether become self-sufficient in producing eight perpetuate a dubious belief: the idea that Gavi—and the governments that help vaccines, including for polio and hepa- corporations and private entrepreneurs to fund it—have been overpaying GSK titis B. Embracing a public model may are subsidizing gaps in development and Pfizer for distributing the vaccines. avoid the detriment detailed above: the financing created by increasingly In 2010, MSF and Oxfam International inability to access commercial produc- noninterventionist states. In reality, it released a report questioning whether tion costs.26 is often governments subsidizing the AMCs were “an appropriate mechanism philanthrocapitalists. for stimulating development of new Conclusion: Lionizing the vaccines, as originally hoped.”24 The Wrong Schumpeter Notes unanswered question of exactly how 1. William Lazonick and Mariana Mazzu- much the pneumococcal AMC financially In this article, I have sketched some pre- cato, The Risk–Reward Nexus: Innovation, profited GSK and Pfizer is particularly liminary challenges to the assumption Finance and Inclusive Growth (London: important given budget reductions at that lone entrepreneurs and philanthro- Policy Network, 2012). United Nation bodies such as WHO. In capitalists represent a radical break from 2. Matthew Bishop and Michael Green, recent years, WHO has seen significant earlier efforts to court capital investment Philanthrocapitalism: How the Rich Can reductions in voluntary contributions from traditional lenders, including gov- Save the World (New York: Bloomsbury from states. As Garrett has reported, the ernments and philanthropic foundations. Press, 2008). current budget crisis at WHO has seen Within the “new” philanthrocapitalism 3. Stanley N. Katz, “What Does It Mean to Say over 12 percent of the agency’s staff let movement, state aid to for-profit orga- that Philanthropy Is ‘Effective’? The Philan- go in the past four years.25 nizations continues to be a key source thropists’ New Clothes,” Proceedings of the of support for business ventures that, as American Philosophical Society 149, no. 2 During a period of diminished con- the microfinance case illustrates, often (June 2005): 123–31. tributions by governments to WHO, benefit wealthy investors at the expense 4. Nicolas Guilhot, “Reforming the World: countries such as the United Kingdom, of loan recipients in poor countries. In George Soros, Global Capitalism and the Italy, and Canada have increased contri- Capitalism, Socialism, and Democ- Philanthropic Management of the Social butions to new public–private partner- racy, Joseph Schumpeter extensively Sciences,” Critical Sociology 33, no. 3 (May ships such as Gavi. In many ways, the detailed the ways that corporations 2007): 447–77. money for Gavi is to be much welcomed. rely on legally favorable institutional 5. Figures drawn from Christopher J. L. Increased childhood vaccinations are a arrangements, including patents, in Murray et al., Financing Global Health considerable health improvement of the order to ensure returns on investment. 2012: The End of the Golden Age? (Seattle: past decade. But an outstanding question “Long-range investing under rapidly Institute for Health Metrics and Evaluation, is whether payments to industry could changing conditions . . . is like shooting 2012); see also David McCoy et al., “The Bill have been lower, ensuring that govern- at a target that is not only indistinct but & Melinda Gates Foundation’s grant-making ment grants to the private sector are moving—and moving jerkily at that,” programme for global health,” Lancet 373, spent in a cost-effective way. The more Schumpeter wrote. “Hence it becomes no. 9675 (May 9, 2009): 1645–53. fundamental question is whether state necessary to resort to such protecting 6. Laurie Garrett, “Money or Die: A development aid should be subsidizing device as patents.”27 He emphasized the Watershed Moment for Global Public the pharmaceutical industry—currently importance of government aid and intel- Health,” Foreign Affairs (March 6, 2012), one of the most profitable industries in lectual property protections to economic www.foreignaffairs.com/articles/2012-03-06 the world—at all. growth. /money-or-die, accessed Nov. 1, 2016; see also Jeremy Youde, “The Rockefeller and Gates Public health scholars Anne- Today’s philanthrocapitalists are Foundations in Global Health Governance,” Emanuelle Birn and Joel Lexchin have valorizing a convenient caricature of Global Society 27, no. 2 (2013): 139–58. suggested that, as a long-term strategy, Schumpeter, neglecting his analyses 7. Eleanor Whitehead, “Aiding business,” Gavi should support the development of of the ways that, through patents, This is Africa (January 5, 2012), www.thisis public, parastatal companies for vaccine subsidies, and competition legislation, africaonline.com/Business/Aiding-business, research and production. Cuba and governmental support is instrumental accessed Nov. 1, 2016. Brazil are two states that have adopted in sustaining economic prosperity. such a model. Since focusing on local Through such selective valorization, 60 ​T H E   N O N P R O F I T   Q U A R T E R LY  WWW.NPQMAG.ORG • WINTER 2016

8. Ibid. and what success looks like (London: Over- PHILANTHROCAPITALISM9. Katie Collins, “Africa’s first Bitcoin wallet seas Development Institute, November 2015).launches in Kenya,” Bitcoin Channel, 20. Ruth Levine, Michael Kremer, and Alice Introducing:July 9, 2013, www.thebitcoinchannel.com Albright, Making Markets for Vaccines: Structuring Blended Gifts/archives/15777, previously published on Ideas to action (Washington, DC: Center forwired.co.uk. Global Development, 2005). Memphis Washington DC10. William Lazonick and Mariana Mazzu- 21. “Pneumococcal vaccine introducedcato, “The risk–reward nexus in the innova- in Nicaragua,” Gavi website, Decem- January 24-25 April 18-19tion–inequality relationship: who takes the ber 12, 2010, www.gavi.org/library/newsrisks? Who gets the rewards?” Industrial /press-releases/2010/pneumococcal-vaccine New York Chicagoand Corporate Change 22, no. 4 (August -introduced-in-nicaragua/. August 10-11 October 2-32013): 1093–1128. 22. Ann Danaiya Usher, “Dispute over pneu-11. Michael Lind, Land of Promise: An Eco- mococcal vaccine initiative,” Lancet 374, no. Also in 2017nomic History of the United States (New 9705 (December 5, 2009):1879–80.York: HarperCollins, 2012). 23. Donald W. Light, “Making Practical An Introduction to Planned Giving12. Lazonick and Mazzucato, “The risk– Markets for Vaccines,” PLoS Medicine 2, Integrating Major and Planned Giftsreward nexus,” 1099. no. 10 (September 13, 2005); and Andrew13. Ibid. Farlow, “Over the rainbow: the pot of gold See the complete schedule14. Ruth McCambridge, “Social Entrepre- for neglected diseases,” Lancet 364, no. 9450 and agenda at:neurship and Social Innovation: Are They (December 4, 2004): 2011–12.Potentially in Conflict?” Nonprofit Quarterly 24. Paul Wilson, Giving developing coun- www.SHARPEnet.com/seminars18, no. 3/4 (Fall/Winter 2011). tries the best shot: An overview of vaccine15. Nick O’Donohoe et. al, Impact Invest- access and R&D (Oxford, UK: Oxfam Inter- 901.680.5300ments: An emerging asset class (New York: national, April 2010).J.P. Morgan, Rockefeller Foundation, and 25. Garrett, “Money or Die.” [email protected] | www.SHARPEnet.comGlobal Impact Investing Network, 2010). 26. Anne-Emanuelle Birn and Joel Lexchin,16. Harvey Koh, Ashish Karamchandani, and “Beyond Patents,” Human Vaccines 7, no. 3Robert Katz, From Blueprint to Scale: The (March 2011): 291–92.Case for Philanthropy in Impact Investing 27. Joseph A. Schumpeter, Capitalism,(New York: Monitor Group and Acumen, Socialism and Democracy (New York:April 2012); and Robert Katz, “Monitor and Harper & Row: 1975 [first ed. 1942]), 88;Acumen research highlights why impact see also Karl Palmås, “Re-assessing Schum-investing needs philanthropy,” Acumen press peterian assumptions regarding entrepre-release, April 17, 2012. neurship and the social,” Social Enterprise17. Alex Goldmark, “Social Impact Invest- Journal 8, no. 2 (2012):141–55.ing: It’s Not Wall Street as Usual,” theDaily Good, October 21, 2011, www.good Linsey McGoey is a senior lecturer in.is/articles/social-impact-investing-it-s-not sociology at the University of Essex. Her-wall-street-as-usual. articles have been published in the British18. See review of Antony Bugg-Levine and Jed Journal of Sociology, Economy and Society,Emerson, Impact Investing: Transforming the Lancet, the Journal of Medical Ethics,How We Make Money While Making a Dif- Science as Culture, and History of theference (Hoboken, NJ: Jossey-Bass, 2011), in Human Sciences.David Chen, “Shifting the Market,” StanfordSocial Innovation Review 10, no. 1 (Winter To comment on this article, write to us at2012). [email protected]. Order reprints from19. Paddy Carter, Why subsidise the private http://store.nonprofitquarterly.org, usingsector? What donors are trying to achieve, code 230406.WINTER 2016 • WWW.NPQMAG.ORG  T H E   N O N P R O F I T   Q U A R T E R LY  ​61

NONPROFIT OVERHEAD The Overhead Baby and the Bathwater: A Nonprofit Trustees’ Need-to-Know by John MacIntosh and George Morris As this article points out, it may not make sense for external parties to use overhead as a primary measure of nonprofit effectiveness, but it’s important for nonprofit boards to keep an eye on the ratio. Let’s not throw the baby out with the bathwater. Asuccessful nonprofit must be of efficiency and effectiveness.2 Trust- are highly concentrated in a small financially viable, deliver an ees serious about overhead should keep fraction of organizations. In fact, effective program, and be in mind some important patterns high- almost half of the organizations— mission-driven. When think- lighted by our recent analysis of the over- mostly very small groups or those ing of financial viability, trustees should head of several thousand nonprofits:3 working in health/human services have a clear understanding of the non- • In every sector—from arts and with approximately 100 percent gov- profit’s business model, full costs, and ernment funding—report no fundrais- overhead structure. Unfortunately, the culture to health and human ser- ing expenses at all. (Three-quarters last of these—overhead—is all too often vices—nonprofits report a wide range of organizations have fundraising seen as little more than a necessary evil, of administrative expenses. But every expenses between 2 and 9 percent.) to be minimized as much as possible. sector also shows clear economies • While fundraising ratios differ con- of scale, with larger organizations siderably by sector and size, fund- We disagree. While critics of the over- showing administrative costs that raising efficiency—the amount spent head myth rightly point out that an orga- are significantly less (15 to 50 percent versus the amount raised—varies far nization’s level of overhead doesn’t say lower) than smaller organizations less by sector and not at all by size. much about whether its programs are as a percentage of total expenses. (Three-quarters of organizations have effective, a thorough understanding of (Three-quarters of organizations fundraising efficiency between $0.09 overhead can suggest whether the pro- have administrative expense ratios and $0.29.) grams, effective or not, could be delivered between 8 and 19 percent.) in a more efficient and/or stable way.1 So • Despite all the attention they get, Does our analysis provide sufficient trustees should not hesitate to give over- fundraising expenses represent less information for trustees to assess their head careful consideration and scrutiny than 10 percent of total overhead (the organization’s overhead? Of course not. alongside the other important indicators rest are administrative expenses) and 62 ​T H E   N O N P R O F I T   Q U A R T E R LY  WWW.NPQMAG.ORG • WINTER 2016

In fact, trustees should be very wary of organizations they govern and encour- • Achieve efficiency through organic NONPROFIT OVERHEADmaking peer comparisons based only on age others to do the same. Despite growth: Scale is associated withpublicly available information. However, this, only 60 percent of nonprofits greater efficiency on average. Butorganizations that appear to be well report 100 percent giving by trust- many nonprofits (and their trustees)outside the “normal” range (i.e., outside ees, and only 26 percent of trustees underestimate the risks associatedthe range of 75 percent of nonprofits of are directly involved in fundraising with trying to grow their way out ofthe same size and sector)—should try from others. Trustees must also rec- a funding problem. Increased scale isto understand why. If costs appear low, ognize that while the supply of total often accompanied by more manage-is this a sign of efficiency, underinvest- philanthropy is largely fixed, many rial complexity. And contracts thatment, or poor reporting? If costs appear organizations may be underinvesting don’t cover their fully loaded costshigh, is this an inherent feature of the in development. At the same time, individually are unlikely to do so inprogram, a function of organizational they must be realistic about what is aggregate. Furthermore, organiza-structure, or something else? Even if possible given the nature of the orga- tions generally require more privateoverhead appears to be in the normal nization (issue area, size, etc.) and philanthropy (in absolute terms) asrange, nonprofits need to make a persua- accept that any increased investment they grow, even if they become moresive argument that the level of expenses in development is truly “risk money” efficient and, therefore, require lessis appropriate and should be funded. that may not pay dividends imme- as a percentage of revenue. Growth diately, if at all. Finally, they should may also require increased space to In a world where overhead was monitor the ratio of private general conduct programs. The financial com-viewed in the proper context, orga- support relative to government and mitments required to rent or own thisnizations wouldn’t need an overhead other restricted funding. A reduc- space will generally be much longer instrategy—but in the world we live in, tion in this ratio over time can lead to duration than the guaranteed programthey do. Though nonprofit leaders are much greater risk. income, creating a significant mis-working hard to educate donors to • Optimize restricted funding: match risk.place less emphasis on overhead, to Funding streams differ in the amountmandate that government contracts fully of overhead that can be recovered. • Achieve efficiency through processfund the associated indirect expenses, Some organizations are better than redesign: While scale effects are real,and to encourage foundations to be others at maxing out the recovery. they appear modest compared withmore generous with overhead-friendly And different organizations can the range of performance exhibitedgeneral operating support, these efforts incur very different marginal over- by organizations of the same size. Sowill take time. So, for the foreseeable head costs for an identical program, nonprofits concerned about overheadfuture, organizations must continue to depending on how it fits with the costs but reluctant—or unable—tocobble together a varied portfolio of rest of their activities. So, in theory, grow may still be able to increase effi-funding—high indirect-rate contracts, it should be possible to optimize ciency by redesigning processes andlow indirect-rate contracts, restricted restricted funding based on a thor- using technology better. Nonprofitsgrants, and unrestricted general operat- ough understanding of each contract interested in exploring these strate-ing funds—to make ends meet. (or potential contract) and how it fits gies should work to recruit trustees together with the rest. But, in prac- with significant operating, technology, Strategically, trustees should address tice, things are more complicated. or business process experience.two distinct questions regarding Organizations must resist the temp-overhead: tation to chase fat contracts outside 2. Given our overhead, do we have their area of expertise. Becoming the right organizational boundaries?1. Given our organizational boundar- overreliant on contracts that haveies, how can we fund our overhead? been taken on because of the margin A second approach to more sustainably may erode the nonprofit’s ability to funding overhead is to explore moving• Raise more unrestricted funding: stay on mission and can become a the organization’s boundaries. Some- Dollar for dollar, unrestricted funding Gordian knot (i.e., difficult to untan- times an effective program is embedded is by far the most valuable type of gle) if circumstances change. within an organization that, for what- funding. It’s also the hardest to raise. ever set of reasons, is not structured to To maximize unrestricted support, deliver it efficiently and/or sustainably. trustees must give meaningfully toWINTER 2016 • WWW.NPQMAG.ORG  T H E   N O N P R O F I T   Q U A R T E R LY  ​63

NONPROFIT OVERHEAD In this case, the situation might be Notes improved by moving the organizational 1. Art Taylor, Jacob Harold, and Ken Berger, boundaries through outsourcing, joining “The Overhead Myth: Moving Toward an “NPQ is a a management service organization, Overhead Solution,” open letter to the sharing space, divesting/spinning off Nonprofits of America (GuideStar, BBB Wise courageous journal programs, or even merging with another Giving Alliance, and Charity Navigator, 2013). in a field organization. And this type of organiza- 2. For our discussion of related issues, see tional redesign can sometimes offer the Dylan Roberts et al., Risk Management for that will need benefits that might come from greater Nonprofits (Oliver Wyman/SeaChange Capital scale, redesigned processes, or opti- Partners, March 2016), www.oliverwyman ”courage. mized funding at a lower risk than trying .com/content/dam/oliver-wyman/global to achieve these things alone. /en/2016/mar/SeaChange-Oliver-Wyman — Jack Shakely, NPQ reader -Risk-Report.pdf. See also Ruth McCam- In our experience, organizations— bridge, “Nonprofit Risk Management Thank you for subscribing particularly those that are “doing just Report a Must-Read for Nonprofit Boards to NPQ! fine”—often take their boundaries for and Execs,” Nonprofit Quarterly, March granted and thereby fail to explore these 16, 2016, nonprofitquarterly.org/2016/03/16 We see ourselves as being in deep opportunities. Of course, any suggestion /nonprofit-risk-management-report-a-must partnership with you, our readers. that an organization’s boundaries might -read-for-nonprofit-boards-and-execs. be moved can raise sensitive issues of 3. Included in this analysis were 10,754 We rely on your feedback, your mission, culture, board member ego, job organizations in the New York Metropolitan survey responses, your stories for our security, funder reaction, and so forth. Statistical Area—excluding all organiza- editorial content. Subscribers are the But with thoughtful planning, these tions reporting no administrative expenses lifeblood of our organization but we issues can usually be worked through. (representing 10 percent by count, 1 percent also rely on your donations for our And even if the organization determines by functional expense). The financial infor- financial health. We keep the cost of not to move its boundaries, the explo- mation used was from the 2014 filing year. ration will leave it better aware of its Source: Amazon Web Services, IRS 990 our subscriptions low— strengths and weaknesses and the envi- Public Dataset, aws.amazon.com/public-data we don’t want cost to be a barrier ronment in which it operates. -sets/irs-990/. For the full report, see John MacIntosh, George Morris, and Dylan for anyone! But if you can give • • • Roberts, Understanding Overhead: A Gov- more—and if you value what NPQ ernance Challenge For Nonprofit Trustees has provided for more than fifteen So far, so good. But let’s be honest: few (Oliver Wyman/SeaChange Capital Part- years—consider joining a growing people join nonprofit boards to read ners, December 2016), seachangecap.org group of your fellow readers, and go spreadsheets or study expense alloca- /wp-content/uploads/2016/12/Overhead-for tions. Compensation and staffing levels -Trustees.pdf. to www.nonprofitquarterly.org are sensitive topics. Merger or even out- to make a donation today. sourcing can be dirty words. Analysis John MacIntosh is a partner and board can suppress the warm glow that drives member at SeaChange Capital Partners, — Ruth McCambridge, giving and service. There are no outside a nonprofit merchant bank in New York Editor in Chief financial analysts, activist sharehold- City. George Morris is a New York–based ers, or markets for corporate control to partner with Oliver Wyman, a global impose organizational effectiveness and leader in management consulting efficiency from the outside. So the com- mitment to make overhead analysis part To comment on this article, write to us at of everyday leadership and governance [email protected]. Order reprints from has to come from within. And in a tough http://store.nonprofitquarterly.org, using environment, organizations unable to do code 230407. this are likely to find themselves in an increasingly precarious position. 64 ​T H E   N O N P R O F I T   Q U A R T E R LY  WWW.NPQMAG.ORG • WINTER 2016

The Nonprofit Quarterly Digital Books Collection Gain access to the nonprofit resources you need with the swipe of a finger. Visit npqmag.org to purchase these and other digital books. Nonprofit Communications: Managing the Message in a 21st Century Environment Does everyone understand your organization’s mission and needs? This 71-page digital collection of writings from 13 experts discusses the theory and practice of modern nonprofit communications. Price: $39.00 Board with Care: Perspectives on Nonprofit Governance Existing systems are seldom built to fit each organization; instead, we often “borrow” governance structures and bylaws from other organizations. NPQ delves into these problematic practices. Price: $24.95 Strange Accounts: Understanding Nonprofit Finance This collection of articles selected from the Nonprofit= = Quarterly explores the strangeness of nonprofit finance and provides best-practice approaches so that the reader may become as skillful a strategist—as manager or board member—as he or she should. Price: $24.95 NPQ’s Reader on Executive Transitions This reader on nonprofit executive transitions includes almost a decade’s worth of well-researched and insightful articles on what can be a difficult and risky moment for many organizations. The sector has been blessed with a small but talented group of thinkers on this topic, and most of them are published here. Price: $24.95

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