Creating an Impact Economy: Policies, Partners and Perspectives

April 15, 2011

Perhaps one of the most striking turning points under consideration at the GPF 2011 Conference is the dramatic broadening of the definition of philanthropy – it has shifted to include not just grant-making, but all private means of financing social goals. Philanthropists are increasingly investing in businesses that provide a social and financial return, and even working to ensure that social benefits are intrinsic to their own companies’ value chains.

Several diverse and engaging sessions over the past two days have explored this extended view of philanthropy, both in how the shift started and where it can take us.  In yesterday morning’s plenary, Antony Bugg-Levine, Managing Director at The Rockefeller Foundation, framed the inflection point at which we stand.  For decades, we’ve organized our view of philanthropy around two basic principles: one, that the only way to solve social problems is through charity or through government; and two, that the only way to create profit is through business.  But recently, these twin assumptions have begun to break down.  New philanthropists, many of them GPF members, are developing fresh approaches in response to changing philanthropic aspirations.

With these new methods, we have an opportunity to be intentional about creating an environment from which a true impact economy can emerge and thrive. It will require colleagues from whom to learn and with whom to collaborate, including members of the informal brain-trust that is the GPF. It will also require putting government policies and practices in place that welcome and encourage these innovations in philanthropy.  Sonal Shah, Director of the Office of Social Innovation and Civic Participation at the White House, identified this as one of two roles for government in encouraging an impact economy: getting the policy environment right, and convening key players to promote cooperation and coordination across the worlds of business and philanthropy.

But beyond policies, we must also build a robust infrastructure for social investing including informed wealth advisors. In a breakout session yesterday evening, panelists considered microfinance, one of the earliest tools of the impact economy. Reeta Roy, President and CEO of The MasterCard Foundation, emphasized that philanthropy has a hugely valuable and honorable role to play in helping to build an ecosystem to support microfinance. Through the creation and support of technical assistance funds, partnerships with existing institutions, and capacity building, philanthropy can dramatically improve the environment in which impact economy projects take place.

Another key step in moving toward an impact economy relates back to yesterday’s conversation with Jeff Raikes of the Bill & Melinda Gates Foundation: we must establish clear standards for success, so that we know it when we see it.  In an afternoon session, James Mwangi of Kenya’s Equity Bank, stood up to emphasize that evaluation depends on the lens through which we think about and assess our investments. He pointed out that microfinance is a response to a market failure to be inclusive – it is not a remedy for poverty.  “Microfinance will always fail if we measure it and evaluate it through a poverty perspective, not a financial one.”

In a session this morning on distributed innovation, panelists presented several remarkable and tangible examples of how to make smart capital investments for impact. Neil Gershenfeld, Director of the Center for Bits and Atoms at MIT, and his colleague Amy Sun, Founder and Director of Fab Lab in Afghanistan, spoke of a bold idea for providing inspiration, education, and livelihood to people around the world: physically putting the tools of innovation into the hands of those who can and will use them. “Innovators are strange people,” Gershenfeld said, “and we need more projects that find the strange people and give them the tools they need.” This is exactly what their project, Fab Labs, does.  Amy spoke of the lessons we as philanthropists can learn from pyramid schemes, applied to education – teaching a few, who will then teach others. Amy also made a pitch for the merits of an exit strategy.  Fab Labs sets up labs around the world, and then “abandons” them, so that they may learn and grow on their own.  Amy’s lab in Afghanistan has been completely self-sustained and funded for the past four years.

In the private sector, far-sighted CEOs are leading efforts to ensure that social good is intrinsic to the value chain of the companies that they lead.  Chuck Slaughter spoke about the Living Goods model, which supports and trains an Avon-like network of door-to-door saleswomen who sell a variety of needed health goods at affordable prices, earning a livelihood for themselves, and improving health in their community.  Aun Rahman, the Country Director of Acumen in Pakistan, described an ambulance chain in India that, thanks to changes in government policies, was able to attract a great deal of private capital and expand dramatically, to the benefit of the poor in the region.

Overall, the double bottom-line is this: to have a true impact economy, we need the policies that enable it, the shared standards that will govern and shape it, a cadre of professionals to nurture and manage it, and the social investors that will fuel it.  Each of us can help all four of these factors come into play.

Jane

Jane Wales, President & Co-Founder, The Global Philanthropy Forum

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