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Effective Philanthropy

April 16, 2010


Aristotle once wrote, “Poverty is the parent of revolution and crime.” That sentiment has echoed through history’s halls — yet poverty remains widespread. It’s not that people haven’t tried to do anything about it. Trillions of dollars have been thrown at the problem — yet poverty persists. Groups of researchers from Brigham Young University and the College of William & Mary have developed a search engine whose purpose is to learn which aid programs work and which programs don’t [“BYU Students Ask: Has Foreign Aid Done Any Good?“, Meridian Magazine]. The article reports:

“BYU’s Political Science Department has partnered with the College of William & Mary to create AidData, a database of development aid given by wealthy nations and international organizations like the World Bank. AidData’s predecessor, Project-Level Aid, was funded by the Bill & Melinda Gates Foundation, the William and Flora Hewlett Foundation and the National Science Foundation. BYU political science professors Mike Findley, Darren Hawkins, Dan Nielson and Sven Wilson are involved with AidData and mentor students on individual research projects. Behind each student project is the overarching question of whether development aid actually works. Their specific questions zero in on topics like education, corruption and donors’ transparency in the aid they give.”

Not surprisingly, undergraduates found that “throwing a ton of money at a problem doesn’t always fix it.” For an overview of the debate on this subject, read my post entitled Will Money Solve Africa’s Problems? One of the areas where money isn’t always used effectively is education. The article reports:

“BYU undergrad Dustin Homer analyzed massive education loans given to developing countries and found no noticeable improvements in enrollment rates. ‘On a big level, it doesn’t seem to be working,’ Dustin said. ‘It’s important to know so that we can do things differently.’ Dustin notes that the analysis did not include private giving or the work of entrepreneurs like Greg Mortenson, who recently spoke at BYU about promoting peace through education. ‘Small entrepreneurs are doing a lot of good, but you need to find a way to make that happen on a big scale,’ Dustin said.”

One of the reasons that private and corporate development aid is more effective than some official development aid is that it doesn’t normally pass through a country’s government bureaucracy where it can be diverted by politics or siphoned off by corruption. Corruption is another topic examined by the students. The article continues:

“BYU undergrad Janessa Sarmiento wanted to know whether certain types of aid influenced the level of corruption in receiving countries. Combining AidData with an international index of country-level corruption, she found that transportation funding is significantly related to higher corruption. A silver lining to her work is that ‘civil society’ aid – the kind that fosters citizen participation in government – has the opposite effect. In fact, a dollar spent on civil society aid reduces more corruption than a transportation dollar creates. ‘Aid can be helpful when applied in the right sectors of development, hopefully leading to better policy decisions and allocations of foreign aid,’ Janessa said.”

Sarmiento’s research provides further justification for why infrastructure projects in developing countries should be public/private ventures. Private participation can help mitigate some of the corruption problems uncovered by the study. On the other hand, it is good news that civil society aid seems to work. I have continually asserted that transparency in government and widespread societal participation is critical if corruption is going to be purged from governments. Research by another undergraduate indicates that donor transparency is often as important as government transparency.

“Sometimes one nation sends aid to another to curry favor in advance of a particular U.N. vote or in a bid for access to natural resources. In such cases, it’s not always clear what the funds are meant to accomplish or how exactly they should be spent. However, when a donor country makes a project’s goals and intent highly transparent, it appears that corruption declines in the receiving country. ‘There are a lot of things that developed countries do that perpetuate problems in developing countries,’ said BYU student Zach Christensen. ‘This paper would argue that more of the blame lies with the West and donors than we’d like to admit.'”

One of the professors who oversees the work described above, Dan Nielson, indicates that developing countries can exert more influence about the type of aid they receive than some people might expect. The article explains:

“The last few decades have seen a dramatic increase in the amount of aid dedicated to improving health and education in developing countries. Professor Nielson and others recently published a paper showing that the shift came in response to a demand for health and education aid by poor nations. ‘That surprises some people who like to think that the powerful nations are calling all the shots on foreign aid,’ Nielson said. ‘Our study shows that the receiving countries also have influence.'”

The Bill and Melinda Gates Foundation believes that receiving countries should have even more influence over development decisions and it pushes programs that get results [“Philanthropy the Microsoft Way,” by Jay Greene, BusinessWeek, 4 December 2009]. Greene explains how the Gates Foundation is making “big bets on innovation” and focusing on “projects that get measurable results.” He begins his story with a lunchroom visit by Jeffrey Raikes, CEO of the Gates Foundation, at a school in Accra, Ghana. Greene notes that the program is a success, but it is not a program sponsored by the Gates Foundation. Raikes had another purpose in mind for his visit.

“Raikes isn’t there to gauge if the menu is a hit, nor can the chief executive of the Bill & Melinda Gates Foundation claim credit for the three-year-old Ghana School Feeding Program. Of the $2.8 billion the foundation doled out last year, not a penny was spent on putting food in the mouths of these children. Instead, Raikes wants to learn why much of the rice eaten by the program’s participants comes from Thailand instead of from farms a few miles away. If Ghana’s farmers can find buyers for their crops, Raikes argues, they will have an incentive to make their land more productive and give this West African nation a more secure food supply. ‘The real opportunity here is to create a stabilized market,’ says Raikes. ‘You can use the school feeding program to bootstrap those efforts.'”

Back in 2006, the Gates Foundation teamed with the Rockefeller Foundations to address the issue of food security in Africa. To learn more, read my post entitled Gates & Rockefeller Foundations Tackle Food Security in Africa. Teaching governments and citizens to help themselves is part of the solution to eradicate poverty. Greene continues:

“‘Bootstrap’ is a word that Raikes uses a lot. To him, it means creating a virtuous cycle in which suppliers can build businesses around long-term alliances with a strong partner. For anyone who has ever worked with Microsoft, as Raikes did for 27 years before retiring and joining the Gates Foundation, it’s a familiar concept. The software giant created an ecosystem of partners that fed off Microsoft technology. Raikes is eager to import these ideas into the world of philanthropy. In October the foundation said it would donate $15 million to the Alliance for a Green Revolution in Africa to help small farmers in Ghana and four other countries improve access to markets for their crops, among other things.”

Over the past couple of years, I have repeatedly asserted that regionalization is likely to grow within the larger globalization framework. It appears to me that Raikes is also promoting that notion. Greene reports that Raikes is likely to succeed because he expects to succeed. That’s why Bill Gates hired him. Greene explains:

“Bill Gates … wanted a chief executive who could adapt to his intense, often impatient style and bring a different approach to the world of philanthropy. ‘We looked for somebody who wants to learn because a lot of things we’re doing are very novel,’ says Gates. ‘We’re not just trying to do what’s been done in the past.’ Raikes also had the chops to run a large and complex organization, having created the Microsoft Office word-processing, e-mail, and spreadsheet business, turning it into a highly profitable unit that brought in $19 billion the year he left. Now Raikes is reshaping the $34 billion foundation, in the process giving it some of the characteristics that made Microsoft both revered and reviled. He’s encouraging many of his 781 employees to place big bets on innovations that might someday make it easy to, say, detect malaria or tuberculosis quickly. He has also pushed to make sure that his people focus on funding projects that can yield measurable results. And while Raikes is making efforts to improve the foundation’s image, he’s clearly comfortable with using the organization’s financial might to set its own agenda in trying to solve seemingly intractable problems.”

Not every organization trying to help impoverished groups is backed by billions of dollars. Whereas the Gates Foundation hopes to help large populations, smaller groups concentrate on helping individuals. One such organization is Toms Shoes [“Charity Gives Shoe Brand Extra Shine,” by Christina Binkley, Wall Street Journal, 1 April 2010]. Binkley reports that doing good can also be good for business.

“Blake Mycoskie, the founder of Toms Shoes, has hit on the perfect fund-raising pitch for his shoe-giving charity. Or is it a perfect sales pitch for his footwear? The idea has soulful simplicity: For every pair of rubber-soled ‘alpargatas’ shoes Mr. Mycoskie sells to the affluent, he gives away a pair to someone who needs it.”

Binkley explains that Mycoskie is involved in something called “cause marketing.” Under this concept, a retailer pairs “a product or brand with a social mission.” Apparently Mycoskie does very well as cause marketer, “his company was recently ranked #6 on Fast Company magazine’s list of most innovative retailers.” Binkley reports that Mycoskie is not alone in the cause marketing field.

“Corporate America has a long track record of charitable fund-raising and has been exploring brand tie-ins with charities for decades. But Toms is going a step further than most in blurring the difference between brand and charity; the brand doesn’t exist outside the charitable work. Its success shows that good works can be a powerful profit engine. Another fashion line that mixes profit and charity will announce its launch next week—and its organizers cite Toms to explain the revenue-sharing theory. The American Family Collection will sell three collections of clothes to mass retailers. (Ralph Destino Jr., president of the Legacy Group, which is launching the line, is hoping for Target and Wal-Mart.) Mr. Destino and his father, a former president and chairman of Cartier Inc., have lined up three American heiresses—Kick Kennedy, Sara Delano Roosevelt and Consuelo Vanderbilt Costin—to lend their names and help design the collections. Half of the proceeds—the heiresses’ half—will go to charities of their choice: ovarian-cancer research, the Waterkeeper Alliance, and Boys & Girls Clubs of America. This pitch doesn’t quite achieve the clarity of Toms’s; it takes several minutes of questioning for Mr. Destino to explain how the manufacturer’s royalties will make their way via the brand to the charities. By contrast, the Toms Web site goes straight to the gut: It shows a sunburned Mr. Mycoskie on his knees, fitting shoes on the feet of Ethiopian toddlers. Toms’s Santa Monica, Calif., headquarters are a mix of Peace Corps meets dot-com, with raw plywood cubicles and mural-sized photos of the ‘shoe drops’ that take place in places like Guatemala and Rwanda. Here in the U.S., the cloth shoes have a cult-like following, particularly among tweens, teens and twenty-somethings.”

Binkley asserts that the time is right for this kind of social entrepreneurship. The Great Recession has made people more aware of both value and the needs of others. She writes:

“The idea of blending commerce with charity is in tune with this cultural moment. Shoppers who are burned out on glam are looking for value in their purchases. Good works can also help differentiate a brand in an oversupplied marketplace. ‘The appeal to the consumer is that when you buy something, you feel connected to something that matters,’ says David Lauren, Mr. Lauren’s son and the company’s spokesman. Toms collaborated with Ralph Lauren’s Rugby brand three years ago, using fabric left over from Rugby clothing. Toms has gone high-end as well, creating a version with a slightly upgraded footbed for Bergdorfs and Neiman Marcus. Cause marketing is only partly about altruism. Consuelo Vanderbilt Costin says she believes her charitable donations via the American Family Collection will benefit her singing and songwriting career by bringing her name ‘into the limelight in a really positive way.’ Jewelry designer Judith Ripka is also plumbing the relationship between charity and marketing. She gives away $700 rings to customers who must donate them to charity. In 15 months, the brand says, it has raised $750,000 for charities in this way. But the ingenious part is an offer that comes with the ring: Judith Ripka will set up a jewelry bar at a fund-raising function, with profits given to the charity. ‘When we first ran this by our CFO, he was nervous, and continues to be nervous,’ says Brian Ripka, president of Judith Ripka. But Mr. Ripka believes the marketing value exceeds the donations’ cost. “We cannot prove this one out, but we believe this has paid off many times over.”

Unlike some social entrepreneurs, Mycoskie claims he didn’t begin his venture with charity in mind. “I wasn’t out to do good. I’m an entrepreneur,” he says. Binkely reports that “his former businesses include a drivers-ed company, a laundry firm and an attempt to create a reality-TV network, following a role on the reality show ‘The Amazing Race.’ (He and his sister came in second.)” She continues the story:

“Toms started because Mr. Mycoskie was bored. He took a month off from his former company, Drivers Ed Direct. After Googling ‘polo lessons cheap,’ he found himself outside of Buenos Aires, where he met wealthy urbanites who were donating used shoes in local villages. He learned that many children can’t go to school because they don’t own shoes. ‘It just hit me,’ he says. ‘Instead of a charity with handouts, why not create a company where that’s the whole purpose? I thought, you buy one pair of shoes today so we can give one tomorrow. We’ll call them Tomorrow Shoes. No, we’ll call them Toms Shoes for tomorrow.’ Privately owned Toms Shoes doesn’t share financial information. But the company has given away 600,000 pairs of shoes in four years, selling their counterparts at roughly $55 each. That rings up to $33 million worth of cloth shoes. Meanwhile, Mr. Mycoskie’s commitment has broadened; he is stumping to raise awareness of podoconiosis—a painful disease caused by walking barefoot on volcanic soils. And now podoconiosis is selling shoes. ‘When you incorporate giving into your model, we’re proving it to be good for business,’ says Mr. Mycoskie. ‘My customers are my biggest evangelists.'”

To learn more about social entrepreneurism, read my posts entitled The Rise of the Social Entrepreneur and Global Social Entrepreneurs. The Bible says, “Whoever shuts his ears at the cry of the poor, they also shall cry themselves, but not be heard.” Even during these difficult economic times, it’s good to know that people have continued to hear the poor and reach out to them. Hopefully, new ways of tracking what works and what doesn’t will lead to a bevy of programs that continue to shrink the number of people living in poverty.

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