Profitable Philanthropy

Yesterday the Wall Street Journal ran an article (subscription required) about the lack of interest in US based micro lending programs – because they aren’t profitable.

Last month the NY Times published a story about a UK based hedge fund called the Children’s Investment Fund that charges higher than average fees and then passes part of their revenue on to charities.

Is this philanthropy? Phil Cubeta doesn’t think so. He recently called micro lending, “micro-loan-sharking”. Tom Watson wondered in September if recent decisions by Google and Virgin are philanthropy, while Susan Raymond declared, “the End of Definitions is upon us”. Lucy Bernholz has written a whole book about the coming future of dynamic “philanthropic capital markets”.

So what’s the deal? The exploration of this argument is a key piece of the development of The Second Great Wave of Philanthropy. Let’s think through what it means to “give” something and/or to “help” someone.

If you need a place to live and I give you a house, that is clearly a gift. What if I give you a no interest loan? What if I give you a loan at a below market interest rate? What if I agree to make the down payment in exchange for an equity interest in the house? What if I buy a house and let you live there for free or at a below market rent? What if I devise a development company that will build low-income housing and fund the organization through a combination of philanthropic grants, government backed loans and below market rent payments from residents?

What if a museum sells overpriced trinkets in their gift store, charges a high entry fee and then uses the proceeds to make their artwork available to the “public” (or at least those who can pay the entry fee)?

What if I give you $100 and the increased self-worth and pride I feel is more valuable to me than anything I could ever buy with the same money?

I don’t know what philanthropy means. In fact, when I first started blogging, I immediately had to define the philanthropy because readers wanted to know what I meant when I used the word. I think the argument is an important one. Note that my blogroll lists “Giving” blogs, not “Philanthropy” blogs (hat tip to Gift Hub).

Maybe what everyone involved in this rapidly changing field should agree on is that we are all involved in “helping”. Clearly, what micro lenders, charitably minded hedge funds, corporate philanthropy, social entrepreneurs, hybrid nonprofit/profitable organizations, and philanthropic capital markets have in common is that they all “help” people (or are trying to). Isn’t that what matters?

I’m all for the debate. Regardless of who’s right and who’s wrong, the debate itself forges stronger concepts and better ideas. It’s going to be a fun ride.


  1. Thanks for your post, Sean. I largely agree with your argument, but I also think we need to guard against being too fetishistic about so-called “market solutions” to social problems. The logic of the market can sometimes be put to good use in the charitable sphere, as you point out. But there are cases where, short of harvesting the organs of the poor, there is no device for generating profit from the philanthropic act. There’s a raft of social entrepreneurial projects that depend essentially on subsidies from foundations and other donors, all claims of a “market-based solution” to the contrary.

  2. Just because a solution is “market based” does not make it a good solution. Frankly, in many cases an outright grant is probably the best approach. I see hybrid approaches as worthy of exploration because they depend on people pursuing their own best interest rather than relying on people giving something away.

    To the extent that we can realign reward structures, so that positive social good comes out the pursuit of personal interest, so much the better. But I agree with you completely that we must not delude ourselves into thinking that market based solutions are somehow automatically a better approach to every problem.

    Giving is often an attempt to correct a perceived inefficiency in our market based economic system. It seems to me that correcting that system through market based solutions gets at the root of the problem and therefore is very much in the spirit of “philanthropy”. But that doesn’t mean that each and every attempt is a good one.

  3. Phil says:

    Helping need not be philanthropy. Jailing people can help society. Torture can help reduce terrorism, maybe. Propaganda can help reduce the possibility of civil unrest, as can tear gas, death camps, and a secret police system. We have to preserve some sense of philanthropy, charity, and giving that distinguishes it from all the other ways of “helping.” Relinquishing dominion and control, without a contractual or binding quid pro quo, seems like a part of a decent definition of giving.

  4. The New York Times Magazine ran a brief article entitled For-Profit Philanthropy yesterday — you can read it here:

  5. MV says:

    Interesting topic.

    I have often wondered about a related paradox: the intersection of philanthropy and socially responsible investing (SRI), or the lack thereof.

    If you use the returns of tobacco stocks to fund your Lung Association bequest, are you doing good or not?