Zhongyun Zi: New Developments in Modern Philanthropy

On December 17th, Leping kicked off its first ever thought-sharing event in OWSpace (Huajiadi), Beijing. Under the theme “The New ‘Twin Engines’ of Philanthropy”, the Managing Director of Leping Social Entrepreneur Foundation, Zhongyun Zi, shared her obse

Zhongyun Zi: New Developments in Modern Philanthropy

Date:  2014-12-26 22:29:44

Modern philanthropic foundations refer to the likes of Carnegie (Carnegie Endowment for International Peace) or the Rockefeller Foundation. US’s rapid industrialization in the early 20th century allowed the rich to amass considerable wealth and philanthropic foundations begin to reach its modern form. Why are they “modern”? Because they set themselves apart from the classical concept of philanthropy that relies on church or personal donations, and what they do is not just piecemeal or scratch the surface, but address the root cause of a problem. Currently, the US has 86,192 such foundations, whose total asset amounts to a whopping 715.4 billion US dollars.


Venture Philanthropy as a Novelty

At the turn of the 21st century, developing countries entered into a new phase that some call the “Information Age”, or “Digital Economy Age”, or as more widely called the “Post-Industrial Age”. Along with changes of social environment and needs, as well as the conditions of philanthropists, a new model of doing philanthropy came into being. It was given various names at the beginning, but later became what we know as “venture philanthropy”. If the 20th century philanthropic foundations are “modern”, then this new model is “post-modern”. In fact, their rise has in turn rendered the 20th century foundations “conventional”.

Let’s talk about the features of venture philanthropy:

First off, it actively researches social needs. It doesn’t begin with establishing a foundation by offering a big sum of money, and wait for others to apply for financial or other forms of aid. Venture philanthropy begins with a group of people who want to make a difference in the world setting out to find what the society needs, and decide what they can do, then go on to address one specific social issue. Nowadays many database are accessible online, making it relatively easy to know what the society needs, how big is the demand and so on, giving venture philanthropy a scientific basis for action.

Secondly, it aims to offer a cure, not a palliative to a social problem. It wants to have scaled impact. In almost any field, the social need is too huge to be met by one foundation single-handedly, even if it has tens of billions at hand. It’s not a matter of financial power, but a matter of impact, which can not be achieved by any single organization alone. The meaning of venture philanthropy is to turn piecemeal to scale, to go big. To have scale, it needs coordination. Leping has introduced the SVP (Social Venture Partners) to China, and its participants are called “partners”. Instead of doing philanthropy themselves, the participants first look for willing and capable partners, and provide funding for them to execute the participants’ vision. What participants provide is not only money, but also time and wisdom, to help and guide the executors to solve problems and overcome hurdles along the way, and cultivate their power of execution. To put it in Chinese, everybody contributes what they’ve got, be it money, labor or wisdom.

In my opinion, several factors of our time contributed to the birth of venture philanthropy:

Firstly, in recent decades, wealth creators in new high tech sectors have turned to second careers in philanthropy at earlier ages, after accumulating considerable personal wealth. These “new money” got rich typically in their twenties or thirties, instead of close to retirement. They are well-educated, scientific-minded, young and impatient. They eager to give back to society by combining philanthropy with social improvement. They are more willing to think out of the box and more ambitious. They always see “innovation” as a keyword and want to do something new, something others have never done before.

Secondly, digitalization empowers people with tools to collect and understand data like never before, which forms the basis of evaluation on “impact”. In early 20th century, the earliest contribution of the Russell Sage Foundation was to finance the systematic collection of statistics for social research, but the measures taken and its coverage were incomparable to the digitalized efforts of today.

Thirdly, today’s philanthropy has a new form of relationship with governments. Philanthropists like Carnegie and Rockefeller emerged at the outset of rapid wealth accumulation caused by industrialization, when there was no national, government-led welfare scheme and personal income tax was minimal. Their philanthropic undertaking filled the vacuum and played a role that government could not. Government’s attitude towards them (which reflects the public’s attitude) turned from distrust and regulation to encouragement by tax incentives. In the following decades, the US government delegate the regulation of philanthropy to its tax authorities and used tax as leverage to encourage or control it. The current legislation is mainly to prevent the non-profit from doing for-profit things for personal gains and undermine tax-payers’ interest. Except few government purchase of service, most foundations have nothing to do with government.

After almost one century’s evolution, almost every developed country’s social welfare and basic benefits rely on the government, the US is no exception. Governments assumed central role in solving social problems like large-scale epidemics, health care and unemployment caused by economic restructuring. Johnson administration’s “Great Society” and “War on Poverty” campaigns in the 1960s marked the peak of such efforts. Despite the waning scale, today the US government’s welfare spending still accounts for 60% of annual budget (military spending is 20%). Compared to governments, any individual philanthropist’s impact seems insignificant. They start to actively work with government, list the government as one of their partners, facilitate the partnership between individual, enterprise and government, lobby the government to provide funding or issue legislation favorable to NGOs.

To influence government policy and legislation, a 501(c) organization has to find a way to go around the prohibition from conducting political campaign activities, including lobbying to influence legislation or intervening in elections to public office. It’s said there are various ways, such as “educating” instead of “lobbying” government officials or candidates by sending them leaflets or articles, and so on. For instance, Obama’s administration established the “Social Innovation Fund”, among many measures influenced by New Profit, a venture philanthropy organization. This fund won bipartisan support in the Congress. This fund is under the name of White House, but not controled by the President. One independent committee was formed to manage the fund, and any big national philanthropic projects can apply for funding. In 2014, it funded a total of 50 to 60 million US dollars. In a nutshell, NGOs are using various ways to get governments involved. These philanthropists think that since government takes tax to do public good, then it can do it in a better way, rather than using it on conventional welfare policies. This collaboration between the government and non-profit sector generates “Collective Impact”.

Fourth, venture philanthropy is highly globalized. This globalization has two folds. Firstly, the benefactors are all over the world, which is true to conventional foundations too. The other is global collaboration, which brings worldwide organizational networks, a distinctive feature of venture philanthropy. I was quite impressed by the SVP Annual Meeting in Texas, where there were people from all over the world, including some developing countries like India. SVP is an international organization that has branches in 39 cities of 8 countries.


Impact-Driven Social Enterprises

The partners of venture philanthropy can be enterprises, specialists and governments, but mostly enterprises, to which works in similar way like venture capital investment. These enterprises are for profit, but their mission is similar to a non-profit—to benefit society--and use the profit for helping its target groups. From this, a new concept of modern philanthropy was born: the “social enterprise”. As far as I know, social enterprises can be structured as a for-profit or non-profit, and it doesn’t only rely on donors, but also accept external shareholders. It’s model and operations are similar to common enterprises, but its ultimate goal is to maximize social impact for human or environmental well-being, rather than maximize profit.

The first is that they focus on social impact, and place maximizing social impact as their foremost objective. So investing in social entrepreneurs belongs to the realm of Impact Investing. When I visited American NGOs earlier this year, all the organizations stressed impact. The people with lofty ideals who founded social enterprises firstly want to make a difference—transform the society and see real impact. Social impact should be the judge of a social enterprise’s success.

The other feature, which I appreciate and want to draw attention to, is that American modern philanthropy stress “responsible investment”. The nature of capital investment is for-profit, where it makes the most money, where it goes. But now people are asking whether it’s beneficial to the society, and only if yes, they would invest, and then pursue the maximization of profit.

Now, there is more capital in private hands. I heard the private capital in the US is 3 trillion US dollars this year (2016). It means people now have 3 trillion dollars at their disposal. The philanthropists are now calling for “responsible investment”. In the past, you donate money to a foundation, leaving the do good part to them. This is not efficient enough and not everyone is willing to donate their money out. Now, “responsible investment” is a kind of investment for profit, but on things that benefit the whole society, such as clean energy, environmental friendly construction materials and education. What are the irresponsible counterparts? Fields like tobacco, weapons and heavily polluting industries.

A good way to tell a social enterprise from a common one is to see whether it benefits the society. I think “responsible investment” is a very wise movement.

There are two problems that baffle me and calls for further discussion.

First of all, I have doubt on the impact or effectiveness evaluation. It’s hard to quantify some long-term benefit on data. Taking sponsoring poor students, data can show how many students from how many schools or villages are given the scholarship, as to their academic achievement, it can only be seen after years. In addition, some projects take years to implement, whose results are not immediate. When I studied the 20th century foundations, I feel that one of their advantages is their long-term vision, that they don’t seek quick success and instant benefits. This is hard for governments, because when a government spends a budget, it wants to see the effect. This is where the advantage of foundations lies, that it doesn’t need the immediate effect. Many research projects needs to be allowed to fail, so what should we do?

For example, the Rockefeller Foundation’s financial support for a group of Oxford scientists led by Howard Florey was crucial to revealing the therapeutic potential of penicillin. The foundation kept contributing money in the research year after year, without knowing when the result would come out. The Rockefeller Foundation also financed many other medical projects, including the Peking Union Medical College (PUMC). It took 6 years for the foundation to build this state-of-the-art modern medical college. After opening its doors, it enrolled students only every 8 years. It was a controversial project at the time. Some argued over the short-term, building a simpler hospital or educating medium-level doctors could have allowed the foundation to provide treatment for more people in poverty-stricken China. After several decades, however, we must admit the foundation’s original plan benefited the medical development of China immensely for the long haul. So, for today’s venture philanthropists, how would they evaluate and choose from the long-term and short-term impact?

The second is the relationship between generating profit and non-profit missions. One important sign of a 501c3 organization is that it’s not for profit. But for a social enterprise, it needs to generate profit to sustain itself without relying on donation. There are two situations as where the profit goes: one is all the profit made is invested on new, non-profit programs; the other is giving part of the profit to investors as dividends. For the latter, the relationship between investors and benefactors are more indirect, as it is through NGO or certain other institutions. How to regulate the social enterprises from tilting towards for-profit goals, and keep them remaining true to their social goals is worth more deliberation.