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Philanthrocapitalism and Davos Make Me Sick!

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My reaction was one of (nearly) incontrollable nausea. A colleague showed me yesterday’s article in The Times on Philanthrocapitalism and the scene at Davos (the World Economic Forum) and I nearly lost it. Right at the top of the article by Matthew Bishop was a photo of ex-Prime Minister Tony Blair watched admiringly by a thoughtful looking ex-President Bill Clinton. What is so wrong with this picture, Matthew Bishop’s article and the entire notion of “Philanthrocapitalism”, a concept he publicised in a recent book with the same title?

First, a reflection on Davos and the World Economic Forum. Reportedly, the great and the good have been rather down and depressed this year. Their numbers have dwindled despite the good skiing and they are worried about the state of the world, and searching with their peers for solutions to our global economic problems. I am struck with dis-belief with the apparently unlimited extent of their smug arrogance. It is these very men (and yes, they are mostly men!) who are singularly responsible for the mess we are in. Blair and Clinton in particular presided over the massive accumulation of debt, reckless deregulation and disproportionate and unbalanced boom in our economy which brought us to the precipice. That they and their ilk imagine that they have anything to say that might be helpful in sorting things out is absurd. In another time they would have been thrown in the dungeon or perhaps beheaded. It is a powerful statement of our state of affairs that they continue to be so feted.

And what about Philanthrocapitalism? This unfortunate term, was coined by Matthew Bishop and his co-author Michael Green in a book with the same title as the Times’ article – “Philanthrocapitalism: How the Rich Can Save the World and Why We Should Let Them”. It describes a phenomenon wherein the rich and super-rich are “showing the way” in how philanthropy should operate, utilising their entrepreneurial skills (yes, and some of their capital) to make a difference.

As a persistent advocate of the concept of deploying entrepreneurial models to solve global problems, which is what social business, enterprise and investment is all about, I wanted very much to like the book. I have heard Matthew Bishop speak and found him engaging and I must confess the book is a good read and well-researched. But the concept has many fundamental flaws and I have been intending to post on this subject for some time–I would welcome feedback from readers on this as well.

The main flaw I will touch on in this post is based on Matthew Bishop’s concept of “leverage”. He rightly points out that however rich the wealthy are, their billions simply do not match the trillions available to government. Thus the (the rich) seek to “lead by experiment”. When they have “proven” that a model works for solving some social problem works they use their “influence” to get governments to follow in scale. This seems fine in theory, but there are some questions which need to be raised.

First, can we be sure that the assessment of the success of these experiments will be truly fair and objective and that the “influence” of these philanthrocapitalists will not overwhlem judgement? I doubt it. Second and more fundamentally, does such a process, very much like Davos and the World Economic Forum, not merely amplify the voice of those who already have an overwhelming influence on government policy and expenditure? And let’s face it, the evidence is not very encouraging that they have used their influence very effectively–do we really wish for them to have more?

I applaud the entry of entrepreneurial approaches into the social realm. I think it is long overdue. I am also delighted by the fact that business itself is becoming increasingly “social”. The disconnect between the pursuit of profit and the pursuit of the common good has become too great and has been a major contributor to our current crisis. I would prefer that these successful industrialists were to concentrate on making their businesses more social, or creating new social businesses. Such acts are more likely to tap into what is most remarkable about these men than a foray into these new fields.

Where Matthew Bishop sadly loses much credibility is when in the Times article he describes Clinton and Blair as “politicians-turned-philanthrocapitalists”. Such a fawning statement beggars belief. It is true that both were politicians. It is also true that they are very much capitalists, and perhaps even giving some of their rapidly increasing wealth to charitable causes, which is great. But to use the term he coined for great entrepreneurs, wealth creators and titans of industry, who are deploying these skills in charitable causes, to describe these two guys is ludicrous and undermines whatever value the term philanthrocapitalism may have.

I think Matthew Bishop and Michael Green have done us all a service in writing a good book and putting the concept of philanthrocapitalism (if not perhaps the rather appalling word) up for debate. Let the debate continue!

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Reply to Klaus Schwab’s: too much focus on big companies.

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In the January/February issue of Foreign Affairs magazine, Klaus Schwab, founder of the World Economic Forum (WEF) writes passionately about Corporate Social Responsibility (CSR), its background and the important positive changes large companies can make in the global business and economic climate.  His contribution and that of the WEF is an indisputably valuable one.  Nevertheless, with the famous star-studded annual WEF about to take place in Davos, Switzerland, I found it necessary to critique the article.  The full contents of my proposed letter to the editor of Foreign Affairs magazine are attached below.  In short, Schwab’s article, like the WEF, is simply too full of the politicians and the large companies who have got us into this mess in the first place.  Its great that they are meeting to ponder how to improve things (and work on their ski technique!), but if we are looking for inspiration we need to look to genuine social entrepreneurs, with less of a stake in the status quo.
For the full text read on.
To the Editor:
“In “Global Corporate Citizenship” (January/February 2008), Klaus Schwab, of the World Economic Forum (WEF), does a creditable job of explaining the nature of corporate social responsibility (CSR) and why it is in the interest of corporations to undertake this activity.

Schwab lays out a history of CSR and conveniently begins in the 1970s, when the WEF began its involvement in this area.  This misses out, as many observers do, the substantial and well-documented CSR activities of companies from the Victorian era, or perhaps even earlier.  The WEF has played a useful role in this field, but it is important to be thorough about the historical context for CSR.

The arguments made by Schwab that corporations see this as in their own interest, rather than from a “defensive or apologetic perspective” are constructive in intent, yet he fails to adequately explain why this is so, apart from some sense of “duty”?.  We believe corporations now act in this way because of vigorously competitive markets for three vital stakeholders: investors, customers and employees.  Each of these groups, to an increasing extent, care about positive corporate action on CSR.

My main critique however lies in Schwab’s excessive focus on large corporations.  The examples he uses, Nestle, Microsoft, AIG, Deutsche Bank and Nike all represent some of the world’s largest corporations.  It is marvellous that they act positively and I commend Schwab in forcefully arguing that they can make a substantial impact.  However, it is my contention that such institutions rarely lead the way on social innovation, and that by focussing on large corporates only, Schwab, like most commentators, is missing much of the story.

For inspiration here we must look to more entrepreneurial firms such as The Body Shop or Ben & Jerry’s.  They played a fundamental role in introducing ethical considerations into the UK and Us consumer products markets, respectively.  The pioneers behind them, Anita and Gordon Roddick and Ben Cohen and Jerry Greenfield are genuine social entrepreneurs.

Business maybe can “help save the world”, as the title of the article suggests, but the models for doing so are unlikely to come from those with the biggest stake in the status quo.  My years as an equity research analyst on Wall Street have convinced me that large companies are rather bad at being entrepreneurial.  They will react to entrepreneurs, as has the UK coffee market, to the growing market penetration of the fair trade company, Café Direct.  Similarly, The Body Shop and Ben & Jerry’s were in later years, acquired by larger firms (L’Oréal and Unilever respectively).  But if we are looking to be inspired, I believe it’s the smaller social businesses which will offer leadership.  It’s no surprise that Muhammad Yunus and Grameen Bank won the Nobel Peace Prize, as Schwab himself mentions, and not Bill Gates and Microsoft.