The Philanthropy Central blog hosted by the Center for Strategic Philanthropy & Civil Society at Duke University has quickly established itself as a must read. The most frequent reason that philanthropy leaders cite when I ask them why they don’t write a blog is that they don’t have the time. So Philanthropy Central’s unique, week long guest blog slots are an ideal solution. So far, the blog has played host to Mario Marino, Nancy Roob, Phil Buchanan, Sally Osberg and many other social sector leaders.
Today I want to turn my attention to the most recent post from Michael Edwards. Edwards is a former long time employee of the Ford Foundation and author of the philanthrocapitalism critique Just Another Emperor and the new book Small Change: Why Business Won’t Save the World.
In his post titled Why "Social Capital Markets" Could Be a Really Bad Idea, Edwards presents what I believe is an extremely limited view of social capital markets. I’ve very sympathetic to the concept that the social sector is different from the business sector and so social capital markets should not simply mimic financial markets. For instance, I particularly liked Jacob Harold’s piece in Alliance Magazine arguing that a robust social capital market might be more like a farmers’ market than Wall Street. But Edwards’ post today argues against a straw man.
The social capital market Edwards describes is a shallow, mechanical market that has little resemblance to how real markets work. For instance when Edwards suggests that social capital markets will dictate which causes are most important and writes "Who is to say that saving the rainforest deserves more support than ending gun crime or racism?" The answer is "No one". There is nothing about the concept of the social capital market that implies that certain types of social good are superior to other types.
When Edwards writes that social capital markets will force "nonprofits to compete with each other for scarce resources," what does he think that nonprofits are already doing? We certainly don’t have unlimited resources and last I checked, nonprofits were competing fiercely to convince donors to support them.
When Edwards writes "variations in… metrics may not reflect meaningful variations in performance, since two organizations may be dealing with similar issues but in totally different contexts," I would respond "Of course!" Sophisticated investors in traditional financial markets do not base investment decisions on simple mechanical rankings. In fact, financial professionals that purport to have a simple formula for producing investment returns are seen as charlatans.
Smart investors use metrics as inputs into the messy process of trying to select their investments. Markets are not driven by metrics and simplistic rankings. They attempt to absorb vast quantities of quantitative and qualitative information in order to allocate scarce resources. I’ll admit that some supporters of the social capital markets concept hope for a day where we can easily allocate resources based on standardized rankings, but that ideal has more in common with how centralized planning works (or doesn’t) than to financial markets.
It is critical that as we build robust social capital markets, that we create vibrant, human markets, not some sort of mechanical sorting machine. Readers who are interested in a more holistic view of financial markets, than the quantitative, machine-like caricature presented by Edwards might be interested in the book Investing: The Last Liberal Art by Robert Hagstrom. The book lays out the ways in which investing in financial markets requires the building of a "latticework" of information that is gathered and processed with mental tools borrowed from the fields of psychology, philosophy, biology, sociology and literature. I think the book offers a holistic, human based vision of capital markets that might shift your thinking about the potential for the social capital markets.
I’ve previously mentioned Hagstrom’s book (which is largely based on the investment philosophy of Warren Buffett’s right-hand man, Charlie Munger) when I rejected an overreliance on tools borrowed from the hard sciences in philanthropy evaluation and when I responded to Albert Ruesga’s worry that evaluation was the “math-anxiety” of philanthropy. Hagstrom is also the author of The Warren Buffett Way, which I drew on extensively last summer when I offered a “robust definition of high performance” for the nonprofit sector.